Pakistan agrees to IMF’s demand for full economic liberalisation

Govt plans to eliminate additional customs duties

Yasir Nazar

20 Mar, 2025

Business & Economy

The International Monetary Fund (IMF) headquarters building is seen in Washington, DC on May 15, 2011. Photo via AFPs

The government of Pakistan has agreed to a significant demand from the International Monetary Fund (IMF) to fully open its economy to foreign competition.

This will involve reducing effective average import tariffs by one-third to 7.1% over the next five years, particularly targeting the heavily regulated automobile sector.

Key areas for economic liberalisation under this IMF agreement will be the minerals and auto industries, as Balochistan province is rich in minerals.

The recent agreement brings Pakistan closer to a Staff-Level Agreement with the IMF, necessary for presenting the country’s case for over $1 billion in loan approval.

The reduction in tariffs is expected to lead to a loss of Rs278 billion in tax revenue, but this may be offset by increased economic activity from trade liberalisation.

All extra customs duties will be phased out over five years, and regulatory duties will be significantly reduced. Future regulatory duties will only be introduced when necessary, with a sunset clause for their elimination.

The government plans to eliminate additional customs duties, cut regulatory duties by 75%, and withdraw certain concessions under the Customs Act.

The weighted average applied tariffs will decrease from 10.6% to 7.1% over five years, beginning in July. This move to liberalise trade comes at a time when many countries, particularly the United States—IMF’s major shareholder—are tightening borders against foreign companies.

Pakistani firms, accustomed to tariff protection, may struggle with increased competition, especially as South Asia’s average tariffs stand at approximately 5.3%, while Asia’s average is 7.5%.

The new National Tariff Policy is set to be implemented in July, along with an Auto Industry Development and Export Policy planned for July 2026. The government has committed to seeking cabinet approval for the new tariff policy before the end of June, with the changes to take effect in the fiscal year 2025-26 budget.

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