Pakistan has accepted 23 tough IMF conditions to continue its loan programme. The IMF has also barred the government from creating new Special Economic Zones or offering fresh incentives. The lender has pushed Pakistan to raise taxes and cut subsidies to stabilise the economy.
The government agreed to increase GST on selected items to the standard 18 percent. It will also raise excise duty on fertilizers and pesticides by 5 percent and introduce duty on costly sugary products. Moreover, Pakistan will shift more items to the standard tax rate to widen the revenue base. The IMF also directed Pakistan to reduce development schemes to control spending.
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The IMF report noted that all provinces agreed not to give new subsidies on electricity and gas. Pakistan was also stopped from signing new RLNG contracts and offering fuel subsidies or cross-subsidy schemes. In addition, OGRA will receive tariff advice within 40 days to ensure timely notifications. The government assured the IMF that power tariffs will keep adjusting and system losses will decline.
The State Bank has been barred from launching new lending schemes during the programme. It cannot buy government securities through market operations, and the exchange rate will remain flexible. Furthermore, the federal and provincial governments cannot set support prices for wheat or impose new regulatory duties on imports. The SIFC will also not propose investment incentives, and all its projects must follow the standard public investment framework.
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Pakistan faces a rising balance-of-payments deficit that recently touched USD 3.3 billion. Therefore, the country agreed to increase taxes on selected sectors and expand the GST base. The IMF also stopped Pakistan from renewing incentives for existing zones. As a result, the government must now manage growth while meeting strict reform targets.