ISLAMABAD: The International Monetary Fund (IMF) announced Wednesday that Pakistan and the IMF have reached a Staff-Level Agreement (SLA) that will introduce a carbon levy, reduce electricity tariffs, increase water pricing, and open the automobile sector to global trade.
“The IMF team has reached an SLA with Pakistani authorities on the first review of the 37-month Extended Arrangement under the Extended Fund Facility (EFF) and a new 28-month arrangement under the IMF’s Resilience and Sustainability Facility (RSF), with total access of around $1.3 billion,” the IMF stated.
This brings the total IMF support for Pakistan to approximately $8.3 billion.
The agreement awaits approval from the IMF’s Executive Board. Once approved, Pakistan will receive about $1 billion under the EFF, raising total disbursements under the program to around $2 billion.
Senior officials said the prime minister would announce an average electricity tariff reduction of Rs7 per unit, effective April 1, 2025.
Key reforms—including the carbon levy, water pricing adjustments, and phasing out protectionism in the automobile sector—will be implemented gradually, starting July 1, 2025. Fiscal consolidation efforts will continue through subsidy cuts and restrained development spending in the next budget.
Officials revealed that Pakistan requested a reduction in the GST rate on electricity to ease costs, but the IMF rejected further tax system distortions. Instead, a higher petroleum levy will help offset power tariffs, with a Rs10 per litre hike in the levy expected to provide a Rs1.80 per unit cushion. Combined savings from power purchase agreements and pending tariff adjustments are expected to yield a Rs7 per unit tariff reduction.
Pakistan has committed to introducing a carbon levy on all hydrocarbons, including petroleum products and coal, starting at Rs3-5 per litre or equivalent, with gradual increases. Revenue from this levy will fund climate-related projects.
To enhance competition, average trade tariffs for the automobile sector will be reduced from about 10.5% to 6% by FY2030. Both the IMF and Pakistani authorities agreed that the auto sector had been overly protected for too long and needed reform.
Cabinet approvals for the carbon levy and auto sector reforms will be shared with the IMF before their introduction in the 2025-26 finance bill, set for implementation from July 1, 2025. Water pricing adjustments will be coordinated with provincial authorities separately.
