IMF adds 11 new conditions

Govt to phase out SEZ tax incentives, ban export zones from local sales

ISLAMABAD:

The International Monetary Fund (IMF) has loaded the $7 billion bailout package with nearly a dozen more conditions, including approval of the new budget by the National Assembly in line with the fund's agreement and amending laws governing special economic and technology zones.

The government has committed that parliament would approve the fiscal year 2026-27 budget in line with the IMF staff agreement. This is the second time the government has accepted such a condition under the current programme, as the last budget was also approved under IMF instructions.

Government sources told The Express Tribune that the staff-level agreement last month became possible after including 11 more conditions. With these additions, the total number of conditions imposed during the past less than two years has reached 75, encompassing all spheres of economic decision-making, governance and private sector development. Pakistan has assured the IMF that it would unveil a fiscally consolidated budget and would not target higher economic growth in the next fiscal year. The assurance was given by Finance Minister Muhammad Aurangzeb to the IMF's deputy managing director during his visit to Washington last week.

Sources said that by June 2027, Pakistan will enact amendments to the Special Economic Zones (SEZ) Act and the Special Technology Zones Authority Act (STZA) to phase out existing fiscal incentives and shift from profit-based to cost-based incentives. The country will also amend these laws to withdraw the authority of the Board of Approvals, the Board of Investment and the SEZ authorities in granting tax incentives. The legal changes will be made to the satisfaction of the IMF to completely phase out all existing fiscal incentives to STZs by 2035.

The government will also prohibit export processing zones from selling their goods in the domestic market. This restriction will be implemented by September this year. Industries located in these zones are often accused of selling a significant chunk of their production locally to evade taxes.

The government accepted this new condition in the middle of the National Assembly Standing Committee on Finance's action to amend the SEZ law last week without discussing it thoroughly. The government will give 6,000 acres of land in Karachi on lease to developers for SEZs without charging any money, said Investment Minister Qaiser Sheikh after the meeting. Any developer can get up to 1,000 acres on lease, but the terms have not yet been finalised. The law also bars courts from taking cognisance of commercial legal disputes related to these zones.

Pakistan has also assured the IMF that it remains committed to not introducing new zones until the outcome of negotiations on creating exceptions for notifying new STZs in priority sectors and phasing out all current by 2035, with a view to leveling the playing field for investment and strengthening the business environment nationally. Out of the $7 billion, the IMF has so far disbursed $3 billion. The fourth tranche of $1 billion is expected to be released in the first week of May.

PRR

According to another new condition, by June next year, the government will set up the Pakistan Regulatory Registry to improve the business climate. The registry will be a comprehensive and legally authoritative source on business regulations, starting with federal government and Islamabad Capital Territory regulations and later extended to all provincial regulations. The IMF is also pushing Pakistan to ease foreign exchange restrictions. As a result, the central bank has committed to developing a roadmap for the gradual removal of these restrictions.

Energy prices

The government has also accepted at least three new conditions to regularly adjust the prices of electricity and gas. Such conditions were already in place but the global lender thought to add three more to the long list to make sure that the government does not go back on its commitment to increase electricity and gas prices.

These new conditions state that the Pakistani authorities remain committed to timely notifications of quarterly tariff adjustments (QTAs) and automatic monthly fuel charges adjustments (FCAs). . In January 2027, Pakistan will fully implement the annual electricity price, reflecting the impact of recent global energy market volatility. The government will also notify semi-annual gas tariff adjustments in line with cost recovery, as determined by OGRA, first on July 1, 2026 and February 15, 2027.

FBR

According to another condition, by June this year, the FBR will centralise the audit case selection process and adopt a standardised audit manual, a published audit policy and a comprehensive audit and integrity risk register. The audit policy will require mandatory follow-up of all high-risk cases identified through the risk management system.

PPRA

By September this year, the government will amend Public Procurement Regulatory Authority rules to eliminate state-owned enterprise preferences in awarding public procurement contracts without competition. The new rules will be implemented subject to federal cabinet approval.

BISP

To offset the impact of higher energy prices and taxes, the government has accepted an IMF condition to increase Benazir Income Support Programme beneficiaries' compensation from Rs14,500 to Rs19,500, beginning in January 2027. This will cover projected inflation for 2026 and an additional increase in generosity, bringing quarterly benefits closer to 15% of the lowest family income quintile's consumption basket.