The International Monetary Fund (IMF) has imposed 11 new conditions on Pakistan for the release of the next tranche of its bailout programme, bringing the total number of conditions to 50. This move comes amid heightened tensions between India and Pakistan following Operation Sindoor, with the IMF warning that continued or escalating hostilities could jeopardise Pakistan’s fiscal, external, and reform objectives under the program.

Key New IMF Conditions For Pakistan

1. Parliamentary Approval of Federal Budget

Pakistan must secure parliamentary approval for a new ₹17.6 trillion federal budget for fiscal year 2025–26, in line with IMF programme targets, by June 2025. This budget includes ₹1.07 trillion earmarked for development spending.

2. Agricultural Income Tax Reform

All four provinces are required to implement new agricultural income tax laws by June 2025. This includes:

Establishing operational platforms for processing tax returns
Taxpayer identification and registration
Launching communication campaigns
Implementing compliance improvement plans.

3. Governance Action Plan

The federal government must publish a governance action plan based on recommendations from the IMF’s Governance Diagnostic Assessment. This aims to publicly identify and address critical governance vulnerabilities.

4. Post-2027 Financial Sector Strategy

Pakistan is to prepare and publish a plan outlining its financial sector strategy post-2027, detailing the institutional and regulatory environment from 2028 onwards.

5–8. Energy Sector Reforms

Four new energy sector conditions have been imposed:
Annual electricity tariff rebasing notifications must be issued by July 1, 2025, to ensure tariffs reflect cost recovery.
Semi-annual gas tariff adjustments must be notified by February 15, 2026, for similar cost recovery.
Legislation must be passed by end-May 2025 to make the captive power levy ordinance permanent, pushing industries to shift to the national electricity grid.
Parliament must remove the ₹3.21 per unit cap on the debt servicing surcharge by end-June 2025, addressing inefficiencies in the power sector and tackling the accumulation of circular debt.

9. Phasing Out Incentives for Special Technology Zones

Pakistan must prepare a plan by year-end to fully phase out all incentives related to Special Technology Zones and other industrial parks by 2035.

10. Lifting Restrictions on Used Car Imports

The government must submit legislation to Parliament by July 2025 to lift all quantitative restrictions on the commercial importation of used motor vehicles, initially allowing imports for vehicles less than five years old (up from the current three-year limit).

11. Defence Budget Transparency

The IMF report highlighted that Pakistan’s defence budget for the next fiscal year is projected at Rs 2.414 trillion, a 12% increase, with the government indicating an even higher allocation (over Rs 2.5 trillion, or 18% higher) following recent military confrontations with India.

IMF’s Warning On India-Pakistan Tensions

The IMF’s staff-level report explicitly warns that if tensions between India and Pakistan persist or escalate, they could undermine the fiscal, external, and reform goals of Pakistan’s IMF-supported program. While recent market reactions have been modest, the risk to economic stability remains significant.

The imposition of these conditions follows Operation Sindoor, in which India conducted precision strikes on terror infrastructure in Pakistan in response to the April 22 Pahalgam terror attack. Pakistan responded with attempted attacks on Indian military bases, leading to several days of cross-border hostilities before both sides agreed to de-escalate on May 10.

Summary

The IMF’s latest tranche for Pakistan is now contingent upon a sweeping set of new fiscal, governance, and energy sector reforms, alongside measures to increase transparency and efficiency. These conditions reflect the IMF’s concerns about Pakistan’s economic vulnerabilities, particularly in light of recent military tensions with India, and aim to address long-standing structural weaknesses in Pakistan’s public finances and governance.

Agencies