IMF Imposes 11 New Conditions on Pakistan, Cites India Tensions as Major Risk

New Delhi – The International Monetary Fund (IMF) has imposed 11 additional conditions on Pakistan as part of the $7 billion bailout package, while also warning that escalating tensions with India pose a significant threat to the country’s economic stability and reform efforts.

According to a report by Pakistan’s Express Tribune, the new IMF conditions include the approval of a Rs 17.6 trillion budget, an increase in debt servicing surcharges on electricity bills, and the removal of import restrictions on used vehicles older than three years.

In its Staff-Level Report released on Saturday, the IMF stated, “Rising tensions between India and Pakistan, if sustained or deteriorated further, could increase risks to the fiscal, external, and reform objectives of the programme.” The report noted a significant escalation in bilateral tensions over the past two weeks, although market reactions have remained moderate, with the stock exchange holding most of its gains and bond spreads widening only slightly.

The IMF also disclosed Pakistan’s proposed defence budget for the upcoming fiscal year at Rs 2.414 trillion, reflecting a 12% increase (Rs 252 billion) over the previous year. However, Pakistan's government is reportedly planning to allocate over Rs 2.5 trillion — an 18% hike — particularly in response to the recent military standoff with India.

Among the newly imposed conditions, the IMF is demanding that Pakistan’s Parliament approve the 2026 fiscal budget — aligned with IMF programme targets — by June 2025.

The Express Tribune reported, “With these 11 new requirements, the total number of IMF-imposed conditions on Pakistan under the current loan programme has risen to 50.”

The federal budget size is projected at Rs 17.6 trillion, which includes Rs 1.07 trillion for development spending and an overall fiscal deficit of Rs 6.6 trillion.

Further conditions include:

• Agricultural Income Tax Reform: Provinces must implement a detailed plan for agricultural income tax enforcement, including taxpayer identification, registration, a communications campaign, and compliance strategies. The deadline is June 2025.

• Governance Reform: The government must publish an action plan based on the IMF’s Governance Diagnostic Assessment to address key governance vulnerabilities.

• Social Protection: The unconditional cash transfer programme must receive annual inflation adjustments to preserve beneficiaries’ purchasing power.

• Financial Sector Strategy: A post-2027 strategy for the financial sector, outlining regulatory and institutional goals for 2028 and beyond, must be developed and published.

In the energy sector, four specific conditions have been added:

1. Annual electricity tariff rebasing notifications must be issued by July 1, 2025, to ensure tariffs reflect cost recovery levels.

2. Semi-annual gas tariff adjustments must be implemented by February 15, 2026.

3. Legislation must be passed by the end of May to make the captive power levy permanent, incentivizing industries to shift to the national grid.

4. Continued implementation of energy sector reforms to maintain pricing in line with cost recovery metrics.

The IMF’s stringent conditions highlight the fragile state of Pakistan’s economy and the growing pressure to implement structural reforms amid rising regional instability and fiscal challenges.

With inputs from IANS