IMF Hands Pakistan Its First MEFP Draft as Both Sides Race Toward a Staff-Level Deal This Week

Pakistan and the International Monetary Fund are down to the final stretch of this round's negotiations: the visiting mission handed Islamabad its first draft of the Memorandum of Financial and Economic Policies on October 4, and both sides are now working to close the gaps in it before mission chief Iva Petrova is due to leave around Wednesday — with a staff-level agreement on roughly $1.2 billion in financing the goal before she does.

What the MEFP draft actually contains

The MEFP is the document in which Pakistan writes down, in specific numbers, what it is promising to do under the programme. The policy-level round formally opened on September 30 when Finance Minister Muhammad Aurangzeb met Petrova's team virtually; the October 4 draft is where those talks turn into contested figures. Two of the biggest gaps are on the current account: the Fund wants Pakistan to plan around a deficit as wide as $4 billion for FY27, while the Ministry of Finance has been working off a projection closer to $2.7 billion. On inflation, the government's own forecast of 8.2 percent for the fiscal year sits below the IMF's own range of 8.5 to 9.5 percent — a gap that matters because it feeds directly into how much room the State Bank has to keep cutting interest rates, a question this desk has already flagged as finely balanced.

The power subsidy fight

The sharpest disagreement in the draft is over electricity pricing. The IMF wants Pakistan to scrap the existing cross-subsidy that keeps bills down for consumers using up to 200 units a month, and replace it with targeted cash assistance delivered through the Benazir Income Support Programme instead — a switch the government has only agreed to phase in from January 2027 rather than immediately, wary of the backlash a sudden bill increase for lower-consumption households would bring. On fuel, the Fund has shown more flexibility: it has agreed to let the existing petrol subsidy scheme continue, but it is opposing any expansion of who qualifies for it, a position that caps a programme the government might otherwise have wanted to widen heading into next year's budget cycle.

Where Pakistan has already cleared the bar

Not every line in the MEFP is contested. The FBR beat its first-quarter FY27 revenue target by Rs 27 billion against the Rs 15,264 billion full-year collection goal, giving Islamabad a genuinely strong data point to bring into a round otherwise dominated by numbers the two sides don't yet agree on. That overperformance doesn't resolve the current account or subsidy disputes, but it does blunt one of the IMF's recurring criticisms of Pakistan's programme compliance — that the tax authority habitually falls short of its own targets.

What happens if they close the gap this week

If Aurangzeb's team and Petrova's mission converge on the MEFP's numbers before the mission departs, a staff-level agreement would set the fourth EFF review and third RSF review on a path to the IMF's Executive Board — the step that actually releases money rather than just programming it. That would put roughly $1 billion in EFF financing and $200 million in RSF financing on track for disbursement, with officials telling local reporters they expect the funds to land by late November or early December. If the two sides can't bridge the gap on the current account deficit, inflation range or the subsidy timeline by the time the mission leaves, the talks continue virtually rather than collapsing outright — but every week added to that calendar also pushes back the date the tranche actually reaches Pakistan's reserves.

Why the subsidy timeline is the detail to watch

Of everything in the draft, the January 2027 start date for scrapping the 200-unit power cross-subsidy is the item most likely to resurface as a political story rather than purely an economic one. It affects the electricity bill of a specific, large bloc of lower-consumption households at exactly the time PTI's long march has already put the government on the defensive over cost-of-living politics. A subsidy cut delayed to January buys the coalition three months of distance from the immediate pressure of this autumn, but it doesn't make the eventual bill increase disappear — it only postpones the point at which households feel it, and the point at which the government has to defend it.

Build Better Pakistan's Economy Desk is tracking the MEFP negotiations and will update this piece when a staff-level agreement is announced.