Islamabad, March 27: Pakistan and the International Monetary Fund (IMF) have reached a staff-level agreement (SLA) under the Extended Fund Facility (EFF), paving the way for a $1 billion disbursement. Additionally, the country has secured $1.3 billion under the Resilience and Sustainability Facility (RSF) for climate resilience.
The agreement, pending approval by the IMF’s Executive Board, will bring total IMF disbursements for Pakistan to approximately $1.3 billion.
Key Economic Reforms and Policy Changes
As part of the agreement, Pakistan has committed to introducing several economic reforms, including a new carbon levy, reductions in electricity tariffs, adjustments in water pricing, and a gradual shift away from automobile sector protectionism.
Electricity Tariff Reduction
A reduction of around Rs7 per unit in electricity rates is expected, with Prime Ministerial approval anticipated soon. The rate cut, effective from April 1, 2025, will be achieved through savings from power purchase agreements and pending tariff adjustments.
Carbon Levy Introduction
The government has committed to introducing a carbon levy on hydrocarbons, including petroleum products and coal.
Read More: IMF Team to Visit Pakistan in May for Crucial FY26 Budget Talks
The levy, starting at Rs3-5 per litre, will gradually increase, with revenues earmarked for climate-related initiatives.
Automobile Sector Reforms
The gradual elimination of protectionist policies in the automobile sector is also on the agenda. Custom duties will be reduced from 10.5% to 6% by FY2030, allowing for greater market competition.
Water Pricing Adjustments
Water pricing will be revised through consultation with provinces, ensuring a structured and region-specific approach.
Fiscal Consolidation and Revenue Mobilization
The government remains committed to reducing energy subsidies, maintaining fiscal discipline, and broadening the tax base.
The IMF has advised against lowering GST on electricity but allowed a higher petroleum levy to offset power tariff costs.
Efforts to strengthen revenue collection include:
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Implementing Agriculture Income Tax (AIT) at the provincial level from July 1, 2025.
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Strengthening fiscal devolution in FY2026.
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Enhancing efficiency in public spending and financial transparency.
Macroeconomic Stability and Monetary Policy
The IMF praised Pakistan’s progress in stabilizing the economy, highlighting declining inflation, improved financial conditions, and narrowing sovereign spreads.
The Fund warned, however, that external shocks, geopolitical risks, and economic policy deviations could undermine these gains.
The government remains committed to:
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Maintaining a tight monetary policy to keep inflation within the 5-7% target set by the State Bank of Pakistan (SBP).
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Ensuring a fully functioning foreign exchange market, promoting exchange rate flexibility, and rebuilding foreign exchange reserves.
Energy Sector Reforms and SOE Governance
Key energy sector reforms will continue to reduce circular debt, improve distribution efficiency, and promote renewable energy adoption. The government will also privatize inefficient power plants and enhance grid connectivity for captive power producers.
Additionally, state-owned enterprises (SOEs) will see enhanced governance reforms, with the Pakistan Sovereign Wealth Fund (PSWF) implementing safeguards to improve oversight and efficiency.
Climate Resilience and Sustainability Measures
Pakistan aims to strengthen disaster resilience, improve water resource management, and enhance climate-related financial disclosures.
Also Read: Pak-IMF Staff Level Agreement Announced, Approval Due
Under the RSF, investments will be directed toward green mobility, disaster financing, and public infrastructure resilience.
Final Takeaway
With this IMF-backed reform agenda, Pakistan is pushing for economic stability, fiscal discipline, and long-term sustainability. The upcoming budget for FY2025-26 will reflect these commitments, ensuring continued macroeconomic stability and structural reforms.
