• Pakistan, the lender reaches the agreement at the personnel of the personnel on the installation of extended funds, another $ 1.3 billion insured for climate resilience
• Around RS7 cut in the electricity rate probably; Water price to be introduced; Gradual end of car protectionism on cards
• The IMF appreciates Pakistan’s economic strategy; The prime minister says that the agreement was secured without imposing more taxes
Islamabad: Pakistan and the International Monetary Fund (IMF) have agreed to introduce a new carbon tax, reduce electricity rates, increase water prices and open the automobile sector to global trade under the personnel level agreement (SLA), announced on Wednesday.
“The IMF team has reached an SLA with the Pakistani authorities in the first review of the extended agreement of 37 months under the installation of extended funds (EFF), and in a new 28 -month agreement under the installation of resistance and sustainability of the IMF (RSF) with total access during the 28 months of around $ 1.3 billion,” said the fund in a statement.
This carries the combined IMF support volume for Pakistan to approximately $ 8.3 billion.
The agreement is subject to the approval of the IMF Executive Board. After the approval, Pakistan will have access to approximately $ 1 billion under the EFF, which carries total disbursements under the program to approximately $ 2 billion.
The senior private officials of the SLA imply the memorandum of economic and financial policies (MEFP) said that around RS7 per unit of reduction in the average electricity rates would be announced by the Prime Minister in a few days, but with effect as of April 1, 2025.
Other important steps, carbon tax, water prices and car protectionism would be gradual, with the implementation as of July 1, 2025. The attorney general consolidation will continue in the next budget through a reduction in energy subsidies and the strict development expense.
The authorities said the government had requested a reduction in the GST rate in electricity to reduce costs. The IMF did not allow more distortions in the GST system, but allowed the use of a higher oil tax to compensate for power rates.
It was estimated that an increase of RS10 per liter in the oil tax provided approximately a cushion of approximately RS1.80 per unit. The combined impact of savings of all energy purchase agreements and pending quarterly rates settings would mean approximately RS7 per unit of reduction in the general rate, which the prime minister will announce on a date of their choice.
The authorities said that the government has pledged to introduce a carbon tax in all hydrocarbons, including oil and coal products, starting with RS3-5 per liter or equivalent. This will gradually increase. Income will be spent on specific weather -related expenses.
Average commercial tariffs (such as custom tariffs) for the automobile sector would also be reduced from approximately 10.5pc to 6pc from now on until fiscal year2030. Both the IMF and the authorities agreed that the automotive sector had enjoyed too much protection for too long, and this should end.
Cabinet’s approvals for these two measures would be shared with the IMF and then would be introduced through the Finance Law 2025-26 for its implementation with effect as of July 1, 2025. The price of water would also be approved in consultations with the provinces and would be discussed separately, the sources said.
Macroeconomic stability
The IMF appreciated the significant progress made by Pakistan in the last 18 months to restore macroeconomic stability and the reconstruction of trust despite a challenging global environment.
Although economic growth is still moderate, inflation has decreased to its lowest level since 2015, financial conditions have improved, sovereign differentials have been significantly reduced and external balances are stronger.
The Fund also highlighted the risks high down and warned of possible landslides of macroeconomic policies driven by pressures to relieve policies together with geopolitical clashes at the prices of basic products, harden global financial conditions or growing protectionism, which could undermine hard macroeconomic stability.
In addition, climate -related risks continue to raise a significant challenge for Pakistan, creating the need to develop resilience, even through adaptation measures.
“In this sense, it is essential to maintain direction and strengthen the progress achieved in recent years, generating resilience by further strengthening public finances, guaranteeing the stability of prices, rebuilding external shock absorbers and eliminating distortions in support of a stronger, inclusive and sustained growth directed by the private sector,” he said.
The authorities are on its way to achieving a underlying primary surplus of the FY25 of at least 1 percent of GDP and promised to maintain consolidation in the FY26 budget. Although it refrains from increasing current expense beyond that budget, the Government would further reduce energy subsidies and prioritize development spending.
The Government would continue to improve income mobilization, the efficiency of spending and transparency, and expand the tax base. Regimes of the Income Tax of Agriculture (AIT) will be guaranteed in the provinces for the implementation with effect since July 1, 2025 and a greater fiscal return in the fiscal year 2016.
Pakistan also promised to maintain a suitable adjusted monetary policy based on data to ensure that inflation remained anchored within the medium -term target range of the state bank of the State Bank of Pakistan (SBP) of 5–7pc and also to preserve “a currency market that works completely in operation to support the flexibility of the exchange rate while renouncing the FX reserve shock absorbers.”
The fundamental reforms of cost reduction in the energy sector will continue to improve the lowest viability and rates. Tariff adjustments would continue to be a priority to reduce stock and circular debt flow. The Government would accelerate the reforms on the side of the costs, including the improvement of distribution efficiencies, the integration of the captive energy into the electricity grid, improve the transmission system, privatize inefficient generation companies and expand the adoption of renewable energy.
The Government will advance its efforts to completely implement the SOE governance framework in all state companies, while adopting appropriate and safeguard government mechanisms for the sovereign wealth of Pakistan (PSWF).
According to the RSF, the Government will strengthen public investment processes at all levels of government to prioritize projects that improve disaster resilience; Improve the efficiency of low use of water resources; Improve intergovernmental coordination in disaster financing; Improve information architecture and dissemination of financial and corporate risks related to climate; and promote green mobility to mitigate significant pollution and adverse health impacts.
Application Add: Speaking during the federal cabinet meeting on Wednesday, Prime Minister Shehbaz Sharif praised the personnel agreement with the IMF, saying that the agreement was achieved without the need for additional fiscal measures, which demonstrates the resolution and planning of the government.
He recognized the difficulties facing common people, who had brought the load increase during the process of achieving economic stability. He also paid tribute to salaried people who contributed an important part in tax collection.
The Government will receive $ 1.3 billion from the IMF, which will reinforce the foreign reserves of Pakistan at $ 8.3 billion, said Prime Minister. He also highlighted the contributions of all provincial governments to support the federal government to ensure the IMF agreement.
Posted in Dawn, March 27, 2025
