1. The IMF’s Review

The International Monetary Fund (IMF) announced on September 13, 2025, that it will review Pakistan’s fiscal response to the devastating monsoon floods. The review, part of the Extended Fund Facility (EFF), will examine how effectively Islamabad has allocated funds to disaster relief and whether the FY26 budget remains flexible enough to absorb further shocks.

2. Why Flood Spending Matters

The floods, which have caused extensive damage to infrastructure and agriculture, are testing the government’s ability to reallocate resources quickly. The IMF’s concern is whether Pakistan’s budget prioritizes emergency relief, food security, and reconstruction without undermining fiscal discipline.

3. Economic Impact So Far

Early estimates suggest that the floods could shave off nearly 0.2% of GDP growth in FY26, primarily due to reduced agricultural output. Food inflation is already rising, and supply chain disruptions are expected to worsen in the months ahead.

4. Implications for Loan Disbursements

The IMF’s review will play a crucial role in determining whether Pakistan secures the next tranche of its loan program. According to Reuters, the Fund will look at:

• How much of the FY26 budget is allocated to disaster recovery
• Whether spending is transparent and well-targeted
• The government’s capacity to re-prioritize without increasing deficits

5. Outlook for Growth & Inflation

The IMF has cautioned that while Pakistan has made progress on fiscal reforms, natural disasters threaten to undo recent stabilization gains. Analysts warn that inflation could remain in the double digits if food supply issues persist, even as foreign exchange reserves face additional strain from increased imports of food and raw materials.

For Pakistan, the review is not just about securing funds but about proving that it can balance fiscal responsibility with humanitarian needs.