IMF Clears Pakistan's New Auto Policy Targeting $6 Billion in Exports

Pakistan has received clearance from the International Monetary Fund for its new automotive policy, with Prime Minister Shehbaz Sharif approving the Autos and Auto Parts Manufacturing Policy 2026-31 after the global lender raised no objections to the draft, according to officials familiar with the development.

The policy sets a cumulative automotive export target of approximately $6 billion over five years and introduces mandatory localization and export requirements for manufacturers. Auto parts makers are expected to contribute $3.29 billion, or 55 percent of the target, while automobile manufacturers are projected to generate the remaining $2.72 billion.

According to government projections, the policy is expected to deliver cumulative foreign exchange savings of about $17.7 billion during 2026-31 compared with importing equivalent vehicles in completely built-up condition. Greater adoption of new energy vehicles is also expected to avoid imports of roughly 1.823 million tons of oil over the policy period.

The government will now introduce a money bill, effectively a mini-budget, in Parliament after securing federal cabinet approval. Under the proposed Drawback of Local Taxes and Levies scheme, eligible exporters will receive support equivalent to 5 percent of net free-on-board export value, with an additional 10 percent available for qualifying incremental exports.

Manufacturers that fail to meet their export obligations could face penalties ranging from 1 percent to 3 percent of annual factory gate sales, and two consecutive years of noncompliance could result in cancellation of manufacturing certificates, except in cases of force majeure. Automakers will also be required to secure export opportunities through the global supply chains of their international principals.

The policy also aims to improve industrial capacity utilization through contract manufacturing, with existing capacity estimated to be between 41 percent and 80 percent idle. A midterm review is planned for 2028, alongside periodic monitoring and corrective measures. Pakistan currently has approximately 2,200 auto parts manufacturers, and a Vendor Upgradation and Technology Transfer Program with an allocation of Rs. 2.1 billion aims to strengthen their technological capabilities and integration into international supply chains.

Adviser to the Prime Minister on Industries and Production Haroon Akhtar Khan said the policy marks a shift from import-dependent vehicle assembly toward export-oriented manufacturing, greater localization, and internationally competitive production.