The International Monetary Fund (IMF) has introduced new structural benchmarks for trade liberalization in Pakistan’s upcoming budget, calling for the removal of all quantitative restrictions on commercial imports of used vehicles less than five years old, alongside the implementation of a carbon levy of Rs5 per liter, according to The News.
To meet these structural benchmarks by December 2025, the IMF has mandated Pakistan to develop a plan, based on a conducted assessment, to completely phase out all incentives related to Special Technology Zones and other industrial parks and zones by the year 2035.
While the IMF staff report on Pakistan does not explicitly mention China, eliminating incentives for SEZs is expected to curb China’s influence in the longer term.
The IMF has made it obligatory for Pakistan to implement the enacted Agriculture Income Tax (AIT) laws through a comprehensive plan. This includes establishing an operational platform for processing tax returns, taxpayer identification and registration, a communication campaign, and a compliance improvement strategy. Additionally, Pakistan must adopt legislation to make the captive power levy ordinance permanent and issue notifications for the annual electricity tariff rebasing and gas tariff adjustment effective from July 1, 2025.
In its staff report, released on Saturday from Washington DC following the completion of the first review and the disbursement of the second tranche under the Extended Fund Facility (EFF) and the newly established Resilience and Sustainability Facility (RSF), the IMF stipulated that parliamentary approval for the FY26 budget, aligned with the IMF staff agreement to meet program targets, was a condition.
The IMF staff, in their assessment, stated that risks remain high amid increasing global uncertainty. External risks are escalating, particularly due to the economic and financial repercussions of the US tariff announcements on April 2nd and the subsequent market response, broader geopolitical tensions, and heightened global economic policy uncertainty, potentially spilling over into (already strained) global financial conditions and commodity prices. “Domestic political economy pressures to reverse and delay reforms remain present and could intensify.”
The Finance Minister and the State Bank of Pakistan (SBP) Governor provided written assurances that “given the challenges posed by an increasingly uncertain external environment and the persistent vulnerabilities and structural rigidities of our economy, we are firmly committed to continuing with sound and prudent macroeconomic policies and structural and institutional reforms to steer Pakistan towards long-term sustainable and inclusive growth that will improve living standards for all Pakistani citizens.”
Specifically, in the coming months, our policies will be guided by the following: Prudent execution of the FY25 budget will continue, and the FY26 budget, to be formulated in close consultation with the Fund, will serve as our fiscal anchor with an underlying primary surplus of 1.6% of GDP.
Efforts will also continue as planned to increase the revenue-to-GDP ratio, broaden the tax base, and enhance tax compliance. Monetary policy will remain appropriately tight, taking into account the delayed impact of past rate cuts, to ensure that inflation remains sustainably within the target range, while the exchange rate will be allowed to adjust freely to absorb external pressures.
Pakistan has committed to phasing out all additional duties (including through import and sales taxes) currently levied on “localized” items/inputs in the automotive sector and to eliminating the regime of special duties applied to imports used by the auto sector, including those outlined in the 5th Schedule to the Customs Act and SRO 655(I)/2006. These changes will be implemented gradually, as outlined in the National Tariff Policy (NTP) 2025–30.
This principle will also apply to any new electric vehicle (EV) production, which will entail an increase and regularization of tariffs and other protections (including preferential sales taxes) on certain inputs. By July 2026, Pakistan will aim to extend the principle of removing preferential treatment for local production to other industries, to be implemented gradually until FY30, in consultation with the relevant government ministries.
