Islamabad:
The Government has accepted the major demand for the International Monetary Fund (IMF) to completely open its economy to foreign competition by reducing the average effective import prices of one third at only 7.1% over five years, in particular to open the very limited automotive sector.
Minerals and automotive sectors will be the two key areas of economic liberalization within the framework of the IMF umbrella, government sources said. The province of Balutchistan made of Pakistan is rich in minerals.
With the new understanding reached on Tuesday, Pakistan and the IMF came closer to a staff level agreement, a prerequisite for presenting the country’s file to the board of directors for approval of the loan tranche of more than a billion dollars, government sources said.
The negative impact of the reduction of a third of average prices would be 278 billion rupes of tax revenue, which should be offset by an increase in economic activity motivated by the liberalization of trade.
The government has agreed to completely abolish additional customs tasks, reduce regulatory tasks by 75% and withdraw concessions under the fifth appendix to the Customs Act, according to sources.
It has been agreed that the weighted average applied tariffs will be reduced by 10.6% current to only 7.1% over five years, from July this year, they added. This 33% reduction in prices will fully open the economy to foreign competition.
The Pakistan agreement with the IMF on the liberalization of exchanges comes at a time when the world closes its borders to foreign societies, in particular in the United States, the main shareholder of the IMF.
Pakistan companies are not attentive to foreign competition and have developed under the aegis of tariff protection at the expense of consumers. The average weighted prices of South Asia are approximately 5.3%, while the average for Asia is 7.5%.
Sources have declared that understanding will be implemented through a new national pricing policy to be deployed in July this year and a new development and export policy of the automotive industry which will be implemented from July 2026.
Pakistan assured the IMF that he would request the approval of the new pricing policy of the federal cabinet before the end of June. The reduction in prices will be implemented in the budget for the year 2025-2010, which will be presented in Parliament in June.
According to understanding, all additional customs tasks will be deleted over five years, while regulatory tasks will be reduced by 75%. This will reduce the weighted average applied rate from 10.6% to 7.1% by the year 2029-30.
Pakistan has also assured the IMF that in the future will not introduce any new regulatory task, except in the event of essential, and a sunset clause will be introduced for their elimination.
According to the plan, additional customs tasks will either be incorporated into customs tasks or regulatory tasks.
Cars will be cheaper
The main tariff changes will be introduced in the automotive sector, where the government has committed to end the induced protections for the automotive industry by 2030. Pakistan has assured the IMF that it would eliminate all additional customs and regulatory tasks and also rationalize customs service tiles. For the automotive sector, weighted average tariffs will be reduced to 5.6%, sources said.
Sources said that during the talks of the not conclusive journal from March 3 to 14, the IMF asked the assurance that the price reduction plan would be implemented over five years and that the government would not derail it after the end of the IMF program in 2027.
However, the Pakistani authorities argued that their average rates were already lower and that the total average was higher due to higher tasks on alcoholic drinks and alcohol. In the case of cars, however, the prices were excessively high, the highest slab reaching 196% of the price of the vehicle.
The IMF was informed last week that the Government would include growth objectives led by export, green initiatives and support for goods with high technology and high value in the new tariff policy.
In principle, prices will not be used as a tool to increase income, and once reduced, they will remain unchanged for three years.
In addition to the automotive sector, commercial restrictions, including non -tariff obstacles, will also be abolished for the mineral sector, sources said.
Pakistani authorities believe that free trade agreements are one of the main reasons for high regulatory rights, as the government uses these rights to slow down the influx of goods imported from China.
Sources have indicated that the implications estimated on the revenues of the rationalization of prices – including customs duties, additional customs duties and regulatory duties – over five years amount to 278 billion rupees. Any reduction in the collection of customs duties will be more than remunerated thanks to an increase in tax collection at import and interior levels, they added.
The increase in overall economic activity will result in a clear increase in all other interior taxes, the cumulative tax collections which should increase from Rs1.4 Billions, according to projections from the Ministry of Commerce.
The authorities believe that liberalization of exchanges could push exports to $ 47 billion by 2030 and that the economy could grow by 4.6%.
The IMF has inquired about the process of imposing tasks and has been informed that the board of directors of the pricing policy is often bypassed by the Federal Board of Return (FBR), sources said.
The principle of reducing prices will be based on the import share of the product, its contribution to total manufacturing, levels of competition and its impact on downstream industries.
