Pakistan has agreed to end currency controls gradually and relax restrictions on foreign exchange movement as part of commitments made to the International Monetary Fund (IMF), aiming to secure the release of a $1 billion loan tranche.

Officials indicated that the move is intended to stabilise the economy amid rising inflation and external pressures caused by the ongoing Middle East conflict. The government has assured the IMF that it is prepared to allow the currency to act as a “shock absorber,” potentially leading to depreciation to curb imports and manage the widening trade deficit.

The State Bank of Pakistan has also signalled readiness to tighten monetary policy further, including raising interest rates if inflation continues to rise. Inflation recently climbed to 7.3%, while the country’s import bill is expected to increase significantly due to higher global oil prices.

As part of the agreement, authorities will develop a roadmap to fully liberalise the foreign exchange regime, though implementation will depend on macroeconomic stability. The IMF believes that easing currency controls will improve investor confidence and support private sector growth.

However, concerns remain over potential volatility in the currency market and risks of manipulation, given its relatively small size. The reforms reflect broader efforts to stabilise Pakistan’s economy while meeting IMF programme conditions.