The International Monetary Fund (IMF) has imposed a key condition on Pakistan’s federal and provincial governments as part of its $7 billion bailout package, prohibiting them from setting support prices for key agricultural commodities like wheat, sugarcane, and cotton.

This measure is part of broader efforts by the IMF to curb government spending and reduce subsidies. Under the condition, all five governments — the federal and four provincial — must phase out price-setting mechanisms, starting with the current Kharif crop season and concluding by June 2026. The prices of essential goods like wheat, sugarcane, cotton, and imported fertilizers will now be determined by market forces, as subsidies on these items will no longer be allowed.

The Punjab government, which has already ceased wheat procurement from farmers, saw a 40% drop in wheat and flour prices, contributing to a decline in inflation last month. However, the IMF also imposed a ban on electricity and gas subsidies across all provinces during the 37-month loan program.

While the Punjab government has denied receiving official communication from the IMF, sources confirm that these conditions will be enforced, effectively ending government involvement in agricultural price-setting.

The move is expected to significantly impact the agricultural sector, especially sugarcane, where the government’s pricing mechanisms have long been a source of conflict between farmers and mill owners. Without government intervention, sugarcane prices will be dictated by market demand, leading to potential price fluctuations for sugar.

These conditions are part of the IMF’s Extended Fund Facility (EFF), which still awaits approval by the IMF executive board. If implemented, they will have far-reaching implications for Pakistan’s agricultural sector and overall economy.