IMF Imposes New Conditions on Pakistan Amid Rising Tensions with India

New IMF Conditions for Pakistan's Bailout

Islamabad: The International Monetary Fund (IMF) has introduced 11 additional requirements for Pakistan to secure the next installment of its bailout package. A recent report highlighted that escalating tensions with India could jeopardize the fiscal, external, and reform objectives of the program.

Among the new stipulations, Pakistan must obtain parliamentary approval for a budget totaling Rs 17.6 trillion, increase the debt servicing surcharge on electricity bills, and lift the ban on importing used cars older than three years.

According to the Express Tribune, the IMF's Staff Level report, released on Saturday, indicated that ongoing or worsening tensions between India and Pakistan could pose significant risks to the program's goals.

The report noted a marked increase in tensions between the two nations over the past fortnight, although the market response has been relatively subdued, with the stock market maintaining most of its recent gains and only a slight widening of spreads.

The IMF's report projected the defense budget for the upcoming fiscal year at Rs 2.414 trillion, reflecting an increase of Rs 252 billion or 12%. In contrast, the government has suggested a budget allocation exceeding Rs 2.5 trillion, an 18% increase, following recent confrontations with India.

On May 7, India executed precision strikes under 'Operation Sindoor' targeting terror infrastructure in response to an attack in Pahalgam that resulted in 26 fatalities. Following this, Pakistan attempted to strike Indian military installations on May 8, 9, and 10.

An agreement was reached on May 10 to de-escalate the conflict after four days of intense cross-border drone and missile exchanges.

The Express Tribune further reported that the total number of conditions imposed by the IMF has now reached 50, with the latest requirements including securing parliamentary approval for the fiscal year 2026 budget in accordance with the IMF staff agreement by the end of June 2025.

The federal budget is set at Rs 17.6 trillion, which includes Rs 1.07 trillion earmarked for development initiatives.

New conditions also mandate that the provinces implement new Agriculture Income Tax laws through a comprehensive strategy, including establishing a platform for processing returns and taxpayer registration, with a deadline of June this year.

Additionally, the government is required to publish a governance action plan based on the IMF's Governance Diagnostic Assessment recommendations to address critical governance issues.

Another stipulation requires the government to outline a financial sector strategy post-2027, detailing the institutional and regulatory framework from 2028 onward.

In the energy sector, four new conditions have been introduced, including issuing notifications for annual electricity tariff adjustments by July 1 to ensure tariffs align with cost recovery levels.

The government must also notify semi-annual gas tariff adjustments by February 15, 2026, and parliament is expected to legislate to make the captive power levy ordinance permanent by the end of this month.

Furthermore, legislation will be required to eliminate the cap on the debt service surcharge, which currently penalizes honest electricity consumers for the inefficiencies within the power sector.

The IMF and World Bank have indicated that flawed energy policies are contributing to the accumulation of circular debt, alongside the government's poor governance. The deadline for removing the surcharge cap is set for the end of June.

Lastly, in a consumer-friendly move, the IMF has requested that Pakistan submit legislation to parliament to lift all quantitative restrictions on the commercial importation of used vehicles, initially allowing imports for cars less than five years old by the end of July. Currently, only cars up to three years old are permitted for import.