In a significant blow to Pakistan’s collapsing economy, the International Monetary Fund (IMF) mission has returned to Washington without signing the much-anticipated Staff-Level Agreement (SLA) with Islamabad, CNN-News18 has reported, citing top intelligence sources.
The development leaves Pakistan’s next loan tranche, estimated at around $1 billion, on hold, highlighting persistent doubts over the country’s fiscal discipline and reform commitment. Despite marathon negotiations, Islamabad’s attempts to seek “grace time” to fulfil pending pledges and structural reforms failed to convince the IMF, which expressed concerns over budget mismanagement, opaque spending, and rising defence expenditures. The setback deepens economic uncertainty and threatens investor confidence in Pakistan at a time when policy credibility is critically low.
IMF raises concerns over Pakistan’s fiscal management
According to top sources, the IMF mission questioned Pakistan’s 20 per cent increase in defence spending for the 2025–26 fiscal year, along with an additional unexplained expenditure of nearly $2–2.5 billion over the past six months. These financial irregularities have intensified the lender’s mistrust regarding Islamabad’s transparency and fiscal responsibility. The IMF also expressed unease over special funds created for security operations, citing opaque spending mechanisms.
Pakistani authorities briefed the IMF delegation on the twin challenges of recent super floods and the May 2025 conflict with India, using both as explanations for missed financial targets and unexpected expenditures.
Progress viewed as insufficient
Top intelligence sources told CNN-News18 that while the IMF acknowledged “significant” progress, it remains unconvinced about Pakistan’s ability to meet critical reform benchmarks. The mission stressed that issues such as revenue collection and budget rationalisation remain unresolved, making the SLA impossible to finalise at this stage.
Policy discussions are expected to continue, with the IMF indicating a willingness to settle outstanding issues and targets. However, sources emphasised that the departure without signing the agreement blocks Pakistan from accessing IMF funds or unlocking parallel financing from other global institutions, a prerequisite for sustaining external reserves and currency stability.
Last week, Moneycontrol had reported that the IMF visiting mission raised serious concerns over Islamabad’s inability to meet tax collection targets and its overreliance on court-pending cases worth more than PKR 170 billion.
The Federal Board of Revenue (FBR) collected PKR 11.74 trillion in FY25 against an annual target of PKR 12.9 trillion, missing both its revenue goal and the agreed tax-to-GDP ratio of 10.5 percent. The ratio did improve slightly, up 1.4 percentage points over last year, but still fell short of IMF expectations, Minister of State for Finance Bilal Kayani admitted, as per The Express Tribune.
Economic and market implications
Market experts, briefed by intelligence sources, predict immediate negative repercussions for Pakistan’s financial markets, including rupee depreciation and declining investor confidence. Intelligence sources added that the SLA delay reflects Islamabad’s weak reform commitment and policy uncertainty.
Despite these setbacks, Pakistani authorities reportedly remain hopeful of eventually securing the $1 billion tranche by leveraging their “good relations" with the Trump administration, even though recent slippages and financial mismanagement continue to cast doubt on the country’s ability to meet IMF expectations.
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