IMF slaps 11 new conditions on Pakistan, flags India tensions as risk to bailout plan: Report

The International Monetary Fund (IMF) has imposed 11 new conditions on Pakistan for the release of the next tranche of its bailout package, taking the total to 50. The global lender has also flagged heightened tensions with India as a risk to the fiscal, external, and reform goals of the programme, according to a report by The Express Tribune on Sunday.

The fresh conditions include parliamentary approval of a record Rs 17.6 trillion federal budget, a higher debt servicing surcharge on electricity bills, and removal of restrictions on importing used cars older than three years. The IMF’s staff-level report, released on Saturday, explicitly warned: "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 noted that tensions between the two countries had risen significantly over the past two weeks, though market reaction remained modest. The warning comes in the wake of India's 'Operation Sindoor' — a series of precision strikes carried out on May 7 in retaliation for the Pahalgam terror attack that killed 26 people. Pakistan responded with attempted drone and missile strikes, before both sides reached a ceasefire understanding on May 10.

The IMF listed Pakistan's 2025-26 defence allocation at Rs 2.414 trillion, up 12%. However, the Pakistani government reportedly indicated an even higher outlay exceeding Rs 2.5 trillion — 18% more — following the recent India-Pakistan conflict.

Among the new fiscal and reform-linked conditions: Parliament must pass the 2026 budget in line with IMF targets by June 2025, Provinces are required to operationalise agricultural income tax platforms and enforcement mechanisms by June this year, and a governance action plan based on the IMF’s Diagnostic Assessment must be published to tackle systemic vulnerabilities.

In the energy sector, four key conditions were added. These include: 

Notification of annual electricity tariff rebasing by July 1, 2025

Semi-annual gas tariff adjustments by February 15, 2026.

Permanent legislation to enforce the captive power levy ordinance by end-May.

Removal of the Rs 3.21 per unit cap on the debt service surcharge by end-June.

The IMF and World Bank have repeatedly blamed flawed energy policies and poor governance for the persistent build-up of circular debt in Pakistan's power sector. Additionally, the government is required to prepare a roadmap to phase out incentives for Special Technology Zones and industrial parks by 2035, with the report due by year-end. One consumer-oriented condition calls for legislation to lift import restrictions on used cars—initially for vehicles up to five years old—by July 2025. Currently, only cars up to three years old are allowed under Pakistan’s import rules.

(With inputs from PTI)