Pakistan and the International Monetary Fund (IMF) have begun discussions on the fourth review of the country’s $7 billion Extended Fund Facility (EFF), with the government’s proposed new auto policy, tax incentives for special economic zones and pending legislative reforms among the key issues under consideration.
The IMF mission, led by Iva Petrova, is simultaneously conducting the third review of Pakistan’s $1.4 billion Resilience and Sustainability Facility (RSF). Finance Minister Muhammad Aurangzeb held an initial meeting with the delegation on September 29.
Successful completion of both reviews could pave the way for approximately $1.2 billion in combined disbursements, comprising around $1 billion under the EFF and $200 million through the RSF.
As part of the discussions, the Ministry of Industries and Production has briefed the IMF mission on Pakistan’s proposed new auto and industrial policies, as well as broader measures affecting the industrial sector.
The government has prepared a draft of the new auto policy, which still requires final consultations and approval. The proposals are also being discussed with the IMF.
The policy is intended to lower vehicle prices, increase automobile exports and encourage the adoption of electric and environmentally friendly vehicles.
Under proposals reported to be included in the draft, customs duties on conventional vehicles could be reduced by as much as 80% over the next five years.
The framework also proposes equal treatment for electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs) and range-extended electric vehicles (REEVs).
EVs could receive exemptions from federal excise duty, capital value tax and withholding tax, while customs duty on equipment used for electric vehicle charging stations could be reduced to 1%.
The proposed financing limit for purchasing EVs could also rise to Rs10 million, with the maximum repayment period extended from three to five years.
Pakistan’s existing IMF programme commitments already envisage substantial liberalisation of the automobile sector, including the gradual elimination of additional customs and regulatory duties and reductions in customs tariffs by FY2030.
The outcome of the ongoing reviews will determine whether Pakistan meets the conditions required for the next tranches of financing under the two IMF programmes.