IMF imposes 11 new conditions for Pakistan, warns of risks to bailout amid rising tensions with India

IMF imposes 11 new conditions for Pakistan, warns of risks to bailout amid rising tensions with India

The International Monetary Fund (IMF) has imposed 11 additional conditions on Pakistan for the release of the next installment of its bailout package and has cautioned that rising tensions with India could threaten the programme’s fiscal, external, and reform objectives, according to a media report on Sunday.

Among the newly imposed conditions on Pakistan include getting parliamentary approval of a Rs 17.6 trillion budget,raising the debt servicing surcharge on electricity bills, and removing the ban on importing used cars that are older than three years.

According to The Express Tribune, the IMF’s Staff Level report released on Saturday said that "rising tensions between India and Pakistan, if sustained or deteriorate further, could heighten risks to the fiscal, external and reform goals of the programme".

The report also metioned that while tensions between Pakistan and India have sharply increased over the last two weeks, the market response has been relatively calm, with the stock market holding on to most of its recent gains and spreads only widening slightly.

The IMF report reveals that the defense budget for the next fiscal year is set at Rs 2.414 trillion, marking an increase of Rs 252 billion or 12%.

In contrast, the government has suggested a budget allocation of over Rs 2.5 trillion, which is an 18% increase, following the recent confrontation with India earlier this month.

India launched precise strikes under ‘Operation Sindoor’ on May 7 targeting terrorist infrastructure in response to the April 22 Pahalgam attack that killed 26 people. Following this, Pakistan attempted to target Indian military bases on May 8, 9, and 10.

After four days of intense cross-border drone and missile exchanges, India and Pakistan reached an agreement on May 10 to end the conflict.

According to a report by The Express Tribune, the IMF added 11 more conditions on Pakistan, bringing the total to 50 conditions.

The IMF has added a new condition requiring "parliamentary approval of the fiscal year 2026 budget in line with the IMF staff agreement to meet programme targets by end-June 2025".

The IMF report has shown that the total size of the federal budget is Rs 17.6 trillion, which includes Rs 1.07 trillion for development expenditure.

Additionally, a new condition has been imposed on the provinces, requiring the four federating units to implement new Agriculture Income Tax laws. This includes creating a comprehensive plan with an operational platform for processing returns, identifying and registering taxpayers, launching a communication campaign, and improving compliance.

The provinces must meet the new condition by June this year.

The third new requirement states that the government must release a governance action plan based on the IMF’s Governance Diagnostic Assessment. This plan aims to publicly highlight reform actions needed to address major governance issues.

Tthe government is required to prepare and publish a plan outlining its financial sector strategy for the period after 2027, covering the institutional and regulatory framework for the years starting in 2028.

Four new conditions have been introduced for the energy sector. The government must issue notifications for the annual electricity tariff adjustments by July 1st of this year to ensure energy prices are set at cost recovery levels.

It must also notify the semi-annual gas tariff adjustment by February 15, 2026, to keep energy tariffs aligned with cost recovery levels, according to the report.

Parliament is also required to pass legislation by the end of this month to make the captive power levy ordinance permanent. The government has raised costs for industries to encourage them to transition to the national electricity grid.

Parliament is also expected to pass legislation to remove the Rs 3.21 per unit cap on the debt service surcharge, a measure that critics argue unfairly forces honest electricity consumers to cover the power sector's inefficiencies.

The IMF and the World Bank have highlighted that ineffective energy policies, along with poor governance, are contributing to the rise of circular debt. The deadline to eliminate the cap is the end of June, as per the report.

The IMF has also set a condition requiring Pakistan to create a plan based on an assessment to completely phase out all incentives related to Special Technology Zones and other industrial parks and zones by 2035. The plan must be submitted by the end of this year.

In a consumer-friendly step, the IMF has instructed Pakistan to submit the necessary legislation to Parliament by the end of July to lift all restrictions on the commercial import of used cars, initially limited to those under five years old. At present, only cars that are up to three years old can be imported. Currently, only cars up to three years old can be imported.