The International Monetary Fund (IMF) has raised strong objections to the Pakistani government's decision to provide tax exemptions and subsidies on imported sugar, warning that this could jeopardize its ongoing $7 billion loan agreement.

The IMF’s main concerns center around Pakistan’s recent approval of duty exemptions on the import of 500,000 metric tons of sugar, which were implemented by the Federal Board of Revenue (FBR) without prior consultation with the Ministry of Finance.

The IMF specifically opposes the government’s plan to subsidize imported sugar by PKR 55 per kilogram, with the imported sugar expected to cost PKR 249 per kg. The Pakistani government had argued that this measure was necessary due to a “food emergency,” citing recent spikes in domestic sugar prices that reached record highs of PKR 200 per kg—fuelled in part by an earlier government-approved export of 765,000 metric tons of sugar.

However, the IMF has rejected the “food emergency” justification, arguing instead that the majority of the subsidized sugar would benefit industrial users rather than ordinary consumers, thereby working against the intended public interest and violating fiscal discipline.

This move constitutes a breach of written commitments made to the IMF, which explicitly include prohibitions on new tax exemptions, zero-rating, or government intervention in commodity pricing without prior consultation.

According to IMF programme documents, the government had committed not to grant tax amnesties or new preferential tax treatment—including exemptions on commodity imports—during the bailout period, and to gradually eliminate government controls over pricing by the end of fiscal year 2025-26.

Domestically, the decision has also encountered resistance from Pakistan’s sugar industry. The Pakistan Sugar Mills Association (PSMA) communicated to the government that local mills have adequate stocks to meet national demand till November and criticised the imposition of a PKR 25 per kilogram sales tax on domestically produced sugar.

Despite this assurance, and as prices remained volatile, the government previously reached an agreement with the industry to lower sugar prices to an ex-mill rate of PKR 165 per kilogram. Provincial administrations are now tasked with ensuring public access to sugar at this reduced rate.

The controversy has created mounting pressure on the government from both the IMF and domestic producers to revise its sugar import policy. Proposed remedial options are reportedly under review, including potentially withdrawing the tax exemptions or scaling back import plans altogether.

The IMF's concerns are twofold: the apparent violation of program conditions and fiscal discipline, and the potential for subsidies to favour industrial rather than household consumers. This situation marks a notable strain in Pakistan's compliance with IMF bailout terms and threatens the continuity of its financial support from the international lender.

Based On ANI Report