Pakistan’s economic troubles are coming under renewed scrutiny from the International Monetary Fund (IMF), with the Fund flagging a breach in the power sector’s circular debt target, rising inflation and mounting risks to the country’s external account, CNN-News18 has learnt.
The concerns come as the IMF and Pakistani authorities negotiate the first draft of the Memorandum of Financial and Economic Policies (MEFP), a key step towards reaching a staff-level agreement.
The IMF review mission is expected to remain in Islamabad for the next few days. If the two sides fail to reach a consensus during the visit, negotiations are expected to continue virtually.
Power-Sector Circular Debt Breaches IMF Target
A major concern flagged by the IMF is Pakistan’s power-sector circular debt, which stood at PKR 1,675 billion at the end of June 2026, breaching the target agreed with the Fund.
The breach puts Pakistan under fresh IMF pressure at a time when the government has budgeted PKR 830 billion in power-sector subsidies for FY2026-27.
The IMF has also asked Pakistan to eliminate the cross-subsidy on electricity consumption of up to 200 units and replace it with targeted assistance through the Benazir Income Support Programme (BISP). The change is expected to be implemented from January 2027.
Meanwhile, legislation related to the Sovereign Wealth Fund is expected to be approved by Parliament.
IMF Sees Current Account Deficit Rising To $4 Billion
Pakistan’s external account has emerged as another major concern, with the IMF pushing for the current account deficit (CAD) to be projected at as much as $4 billion for the ongoing fiscal year.
The assessment comes as Pakistan recorded a current account deficit of $543 million during the first two months of FY2026-27.
The figure was 36% lower than the $853 million deficit recorded during the corresponding period of the previous fiscal year, but fresh external risks threaten to put further pressure on the country’s balance of payments.
Gulf Conflict Poses Fresh Threat To Pakistan
The continuing conflict in the Gulf poses another risk to Pakistan’s already strained external sector.
A prolonged conflict could disrupt Pakistan’s trade with Gulf Cooperation Council countries, hit exports of goods and services and affect remittance inflows from more than a million Pakistani workers in the region.
Remittances from the Gulf remain crucial to Pakistan’s balance of payments.
Global energy supply-chain disruptions resulting from the conflict have also pushed up oil import costs, threatening to worsen Pakistan’s trade deficit.
Inflation Outlook Deteriorates
Inflation is another area where the IMF has sounded the alarm.
The Fund expects average inflation in Pakistan to remain elevated in the range of 8.5% to 9.5% during FY2026-27.
Higher energy costs and external-sector pressures could add to inflationary risks, complicating Pakistan’s efforts to stabilise its economy.
Pakistan’s 4% Growth Target Faces Risks
Pakistan is targeting GDP growth of 4% for the current fiscal year, but persistent inflation and mounting external-sector pressures pose risks to the economic outlook.
The growth target envisages agriculture expanding by 3.6%, the industrial sector by 4.5% and services by 4.2%.
The IMF has also undertaken Article IV consultations with Pakistan, under which the Fund reviews a member country’s economic and financial situation as well as its policies and risks.
