Yes, Pablo was hallucinating at that moment. We Know that Pablo and Gustavo were very close. Following is the conversation that happens between Pablo and Gustavo.
Gustavo: You'd have to be really stupid or have a lot of balls to sit here as if nothing's happening.
They're offering seven million dollars for your head, and you're sitting here like a fucking tourist.
Pablo: You look just like Che Guevara.
Gustavo: What's beautiful is always beautiful.
You look like you ate Che Guevara.
What? You don't miss me or what?
Pablo: Yesterday, I turned 44 years old.
Gustavo: Son of a bitch, you're old, Pablo.
Pablo: Thank you, Gustavo.
Did you know that Julius Caesar invaded Britain when he was 44? He lost power many times but always got it back.
Never letting anything stop him.
Gustavo: Yeah, but that motherfucker had a fucking army.
Pablo: You remember when we used to talk about going to the jungle if shit got too heavy?
Gustavo: Yeah, and joining the guerrillas.
Pablo: [sighs] Tata wants me to surrender.
Gustavo: Tata's a smart woman, Pablo.
She loves you very much.
Maybe it's a good idea.
You surrender, go to jail and take the time to rest, think, to restructure the business, and escape whenever you want.
The legend grows.
Pablo: She said the same thing.
Gustavo: We both know that things aren't going to be as easy as before, cousin. Let's cut the bullshit.
We are bandits, Pablo.
Gustavo: What do you think?
Pablo: [sighs] I think that everything started to fall apart the day you left.
Gustavo: So you do miss me, you son of a bitch.
Pablo: Every fucking day of my life, brother.