Government Accepts IMF’s Major Demand for Economic Liberalization, Customs Tariffs to Drop by One-Third
Islamabad:The government has agreed to a significant demand from the International Monetary Fund (IMF) to fully open the economy for external competition. Under this agreement, the average import tariff will be reduced by one-third over the next five years, bringing it down to just 7.1%.
According to sources, the sectors prioritized for economic liberalization include mining and the auto sector, with the latter receiving the most protection. The mineral-rich, conflict-affected region of Balochistan is expected to benefit significantly from this shift.
With this new understanding, Pakistan and the IMF are reportedly close to finalizing a staff-level agreement, which is a prerequisite for the IMF’s Executive Board’s approval of a $1 billion tranche.
However, the reduction in average tariffs by one-third is expected to result in a loss of Rs 278 billion in revenue, which the government hopes to offset through an increase in economic activities due to trade liberalization.
The government has also agreed to eliminate additional customs duties, reduce regulatory duties by 75%, and remove concessions under Schedule 5 of the Customs Act.
As part of the reform plan, the average tariff will be reduced from the current 10.6% to 7.1% over the next five years, starting in July this year. A total of 33% of the economy will be fully opened to external competition.
The trade liberalization agreement with the IMF comes at a time when many countries, including the United States, are tightening their borders and restricting access for foreign companies. Pakistani companies, which have been growing under tariff protection, are not competitive enough in the global market, with consumers bearing the cost.
In South Asia, the average tariff is 5.3%, while in Asia, it stands at 7.5%. Sources have stated that the implementation of this agreement will be carried out through the new national tariff policy, which will be introduced in July, along with a new auto industry development and export policy, effective from July 2026.
Pakistan has assured the IMF that the new tariff policy will be approved by the federal cabinet by the end of June. Implementation of the tariff cuts will begin in the 2025-26 budget, which will be presented in Parliament in June.
Additionally, Pakistan has assured the IMF that no new regulatory duties will be introduced in the future, except in cases of extreme necessity, and any such duties will have a set time frame. The additional customs duties will be merged into either customs duties or regulatory duties.
Changes in the tariff structure for the auto sector will make vehicles more affordable. The government is committed to eliminating unnecessary protection for the auto industry by 2030, and has assured that the customs duty schedule will be rationalized, bringing the average tariff for the auto sector down to 5.6%.
The IMF has also sought assurance that the government will continue the tariff program for five years after the completion of the IMF program in 2027 and will not derail the policy.
Non-tariff barriers in the mineral sector will also be removed. Pakistani officials believe that free trade agreements have contributed to high regulatory duties, which are used to restrict imports from China.
The government anticipates that the expected increase in imports and trade activities due to tariff reductions will make up for the lost revenue through local taxes, which could reach Rs 14 trillion by the Ministry of Commerce’s estimates. Officials are confident that trade liberalization will increase exports to $47 billion by 2030 and the economy will grow at a rate of 4.6%.
