Key Takeaways from IMF Report

Staff Report:

Islamabad: IMF has published its detailed report after approval of first review of the Extended Fund Facility (EFF) of US$7bn and approval of a new climate financing facility of US$1.4bn.The first tranche of RSF will be released after its first review scheduled in Sep 2025.

The key takeaways from the report

Select Quantitative Performance Indicators (QPI) targets further tightened: Pakistan has met all QIA targets of Sep/Dec 2024 quarter including net international reserves.

For Jun 2025, some of the targets in QPI are further tightened i.e. floor on net international reserves is adjusted down to -US$7.45bn from earlier -US$8.65bn, Ceiling on net domestic assets of central bank is revised down to Rs15.0tn from earlier Rs15.8tn and floor on new tax return revised up to 850,000 from earlier 450,000 by Jun 2025.

These targets are further tightened as Pakistan outperformed in these targets with significant margin, in our view. We view this as positive step as this signals current regime’s seriousness towards stabilizing the economy and will also help Pakistan in building a quality FX reserves and more people in tax bracket.imf board

Economic Indicators; external and inflation indicators improved while growth revised down: IMF has revised down GDP growth target from 3.2% in FY25 to 2.6% while has shown improvement in current account deficit from earlier -0.9% of GDP to -0.1% of GDP. Inflation average is also revised down to 5.1% from earlier 9.5% for FY25.

New Structural Benchmarks added: IMF has added 11 new structural benchmarks which mainly attributes to regular semiannual/annual practice of country, i.e. notification of electricity tariff rebasing, semi annual gas tariff adjustment, approval of budget, and inflation adjustment in unconditional cash transfer.

Few new structural benchmarks which are unusual i.e. submission of a legislation in parliament for lifting of all quantitative restrictions on commercial import of used motor vehicle (Jul 2025), adopt of legislation to make captive power levy permanent (May 2025), and legislation to remove cap on debt service surcharge (Jun 2025).

“We consider notification of gas and electricity prices “business as usual”, however, the government has committed to provide timely advice to Sui companies within 40 days of their determination and by that, gas price change notification by the government can be expected any time soon as 40 days are set to complete by May 20, 2025 as determination by Sui companies came on Apr 10, 2025.” Topline said.

Furthermore, lifting of restriction on used car imports and relaxing the existing age limit of 3 years to 5 years will increase the import of used vehicles in our view which will be negative for auto assemblers. However, this will be implemented by Jul 2026 onwards, only legislation needs to be submitted by Jul 2025.

Negative for Local Auto Assemblers: In our view, hatchback car makers will get more affected than Sedan/SUVs manufacturers as large import market comprises of engine capacity up to 1000cc, in which largely Pak Suzuki operates and while KIA also holds some share for its Picanto model.

We believe, this will be negative for auto assemblers, largely for hatchback car makers up to 1000cc. However, this will be effective from Jul 2026.” Topline said/

Govt. also commits removing exemptions/preferential treatment for local auto makers: Government also commits to phase out all additional duties currently charged for localized inputs in the auto sector including removing the special duties applied through 5th custom schedule and SRO 655, however, these changes will be gradual.

Government seeks to “extend the principle of removing the preferential treatment of local production to other industries by Jul 2026 and this will be implemented in gradual manner until FY30. We believe, this will be negative for local auto vendors as auto assemblers are currently incentivized to buy locally made parts from Pakistan as duties on these parts were higher for import.

After removal of this preferential treatment, both local and imported parts will be at level playing field, in our view. Nonetheless, this will be gradual and will start from Jul 2026 onwards.

Positive for flat steel manufacturers and negative for auto vendors: We believe, if this is implemented this will be positive for local CRC players as currently CRC for autos is imported through SRO 655 under special duty rates. However, auto industry argues that local players cannot make the certain variants to CRC they require.

As per our channel checks, local CRC industry can get additional volumetric share of over 60-80k tons after phasing out of SRO 655. However, at the same time when high duties on locally made auto parts would be reduced, this can attract imports of those parts as well, which will be negative for auto vendors.