IMF asks Pakistan to remove textile sector protection

The International Monetary Fund (IMF) has issued a stark warning to Pakistan, urging it to eliminate preferential treatment, tax exemptions, and other protections for its agriculture and textile sectors. In a recent report, the IMF criticized these sectors for hindering economic growth and contributing to persistent poverty.

The report, released as part of a $7 billion Extended Fund Facility (EFF), highlighted the failure of the agriculture and textile sectors to contribute significantly to GDP while consuming substantial public funds. This, according to the IMF, has led to inefficiencies and hindered Pakistan's economic development.

The IMF emphasized the need for Pakistan to abandon outdated economic practices to escape persistent boom-bust cycles. The report noted that over 40.5 percent of the population now lives below the poverty line, largely due to stagnant economic conditions.

The IMF noted significant tariff barriers that stifle competitiveness and inhibit advanced manufacturing. The textile sector, in particular, has benefited from various subsidies and preferential tax treatments since 2007, resulting in the highest tax gap relative to its value added.

To improve economic conditions, the IMF urged the Pakistani government to simplify trade policies in the upcoming National Tariff Policy (2025-29) and discontinue export subsidies and local content requirements, which may lead to misallocation of resources and violate international trade obligations.