Pakistan Agrees to IMF Terms, Moves Toward Economic Liberalisation

Pakistan has agreed to a major condition set by the International Monetary Fund (IMF) to open its economy further to foreign competition, a step that includes slashing effective average import tariffs by one-third to 7.1% over the next five years.

The agreement, which primarily impacts the highly regulated automobile sector, is part of broader economic liberalisation efforts targeting key industries such as minerals and auto manufacturing. Balochistan, rich in mineral resources, is expected to play a central role in this shift.

This agreement brings Pakistan closer to securing a Staff-Level Agreement with the IMF, a crucial step in unlocking over $1 billion in loan approval. While the tariff cuts are expected to reduce tax revenue by Rs278 billion, policymakers anticipate that increased trade and investment will help offset the shortfall.

Under the new framework, all extra customs duties will be gradually removed within five years, and regulatory duties will be significantly reduced. Future regulatory duties will be introduced only when necessary and will include a sunset clause for their removal. The government plans to eliminate additional customs duties, reduce regulatory duties by 75%, and withdraw certain concessions under the Customs Act. The weighted average applied tariff will decline from 10.6% to 7.1% starting in July.

Pakistani companies, long shielded by tariff protections, may face difficulties adapting to increased competition. South Asia’s average tariffs currently stand at 5.3%, while Asia’s overall average is 7.5%, putting local businesses under pressure. The government will implement the new National Tariff Policy in July, with a separate Auto Industry Development and Export Policy set for July 2026. Cabinet approval for the tariff reforms is expected before the end of June, ensuring the changes take effect in the fiscal year 2025-26 budget.