The International Monetary Fund (IMF) has imposed 11 new conditions on Pakistan’s bailout package and cautioned that the worsening tensions with India may jeopardise the programme’s fiscal, external, and reform objectives, The Express Tribune reported on Sunday.
These include the raising of the number of conditions linked to the IMF deal to 50, which further mounts the pressure on Pakistan as it negotiates the release of the next financial assistance tranche. Among the latest demands is the parliament’s approval of the next fiscal year’s Rs 17.6 trillion federal budget, which includes Rs 1.07 trillion for development schemes.
Political Tensions
As per the IMF Staff Level report, “Rising tensions between Pakistan and India, if continued or further deteriorate, could increase risks to the programme’s fiscal, external and reform objectives.” The report added that the hostilities between the two countries have intensified in the last two weeks. Nevertheless, financial markets have been relatively calm, with the stock market holding the bulk of recent gains and bond spreads having widened marginally only.
These tensions come after India’s precision strikes under ‘Operation Sindoor’ on May 7, in response to the April 22 Pahalgam terror attack that had claimed 26 lives. Pakistan sought to target Indian military facilities between May 8 and 10 in retaliation. A ceasefire agreement was arrived at on May 10 following four days of drone and missile exchange.
Reflecting the increased security issues, Pakistan’s defence budget has jumped to Rs 2.414 trillion—a rise of Rs 252 billion or 12%, according to the IMF report. The Pakistani government, however, indicated an even sharper rise, suggesting more than Rs 2.5 trillion, or an 18% increase, in the wake of its confrontation with India last month.
Budgetary and Governance Reforms
Among the IMF’s fresh financial conditions is that ‘parliamentary approval of the 2026 budget in accordance with the IMF staff agreement to achieve programme objectives by end-June 2025’ be obtained. Another condition requires provinces to implement new Agriculture Income Tax legislation. This involves establishing platforms for the filing of returns, identification of taxpayers, communication campaigns, and compliance improvementwith an end date of June this year.
A standalone requirement asks the government to release a governance action plan in accordance with the IMF’s Governance Diagnostic Assessment. The objective is to ‘publicly identify reform measures to address critical governance vulnerabilities’.
The government must also set out a post-2027 financial sector strategy. The roadmap, which is to be released shortly, will establish the regulatory and institutional frameworks for the period 2028 and beyond.
Energy Sector and Industrial Policy Conditions
The IMF has added four new energy-related conditions. These are publishing the yearly electricity tariff rebasing notice by July 1 and making a semi-annual gas tariff adjustment announcement by February 15, 2026, to maintain tariffs at cost recovery levels.
The IMF has also directed Pakistan to legislate the captive power levy ordinance into a permanent measure by May end, in order to compel industries to switch to the national power grid. Another parliamentary measure is to do away with the Rs 3.21 per unit maximum for the debt servicing surcharge. The IMF faulted the maximum, saying it disproportionately hurts sincere consumers while hiding inefficiencies in the power sector.
Blaming ineffective governance and ill-conceived energy policies, the IMF and World Bank attribute these to the accumulation of circular debt. Removal of the cap on the surcharge is to be completed by end-June.
Incentive Phase-Out and Car Import Easing
The IMF has also asked Pakistan to remove all the incentives attached to Special Technology Zones and other industrial zones by 2035. A detailed plan for this transition is to be provided by the end of the year.
In a consumer-oriented reform, the IMF requested that Pakistan bring to Parliament legislation that would remove all quantitative limits on the importation of used vehicles granted initially for automobiles up to five years of age, rather than the existing three years. The legislation should be brought before the end of July.
These broad conditions are designed to provide fiscal responsibility, openness, and structural changes as Pakistan tries to navigate economic issues as well as regional uncertainty.
