The International Monetary Fund (IMF) has imposed a significant condition on Pakistan’s federal and provincial governments as part of its $7 billion bailout package, effectively prohibiting them from setting support prices for agricultural commodities, including wheat, sugarcane, and cotton.

This restriction is one of several aimed at curbing government spending and limiting their authority to provide subsidies.

The IMF’s condition requires the phasing out of price-setting mechanisms by all five governments – federal and four provinces – beginning with the current Kharif crop season and concluding by June 2026. This will impact the prices of essential commodities like wheat, sugarcane, and cotton, as well as imported fertilizers, which will no longer be sold at subsidized rates.

The Punjab government, which has already stopped buying wheat from farmers, has seen a 40% reduction in wheat and wheat flour prices, contributing to a single-digit inflation rate last month. However, the IMF has also imposed a condition prohibiting all provinces from providing electricity and gas subsidies during the 37-month loan program.

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The IMF’s decision has been communicated to the Punjab government, but the province has denied receiving any such communication. Despite the denials, sources confirm that the IMF’s conditions will be implemented, effectively ending government intervention in the agricultural sector.

The move is expected to have a significant impact on the agricultural industry, particularly the sugarcane sector, where the government’s price-setting mechanism has been a point of contention between farmers and millers. The IMF’s condition will leave the market forces to determine the price of sugarcane, potentially leading to fluctuations in the price of sugar.

The IMF’s conditions are part of the Extended Fund Facility (EFF) which is yet to be approved by the IMF executive board. The implementation of these conditions will have far-reaching consequences for Pakistan’s agricultural sector and its economy as a whole.