IMF slaps 11 more conditions on Pakistan, flags tensions with India as big risk

The International Monetary Fund (IMF) has slapped 11 new conditions on Pakistan for the $ 7 billion lifeline that it has extended and also flagged the rising tensions with India as a huge risk for the cash-strapped country.

The new conditions that have been imposed include approval of a new Rs 17.6 lakh crore budget, increasing debt servicing surcharge on electricity bills and lifting restrictions on the import of more than three-year-old used cars, according to a report in Pakistani newspaper Express Tribune.

The Staff Level report, which the IMF released on Saturday, also 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 further stated that tensions between Pakistan and India have risen significantly over the past two weeks but so far the market reaction has been modest with the stock market retaining most of its recent gains and spreads widening moderately.

The IMF has shown Pakistan's defence budget for the next fiscal year at Rs 2.414 lakh crore, which represents an increase of Rs 25,200 crore or 12 per cent. Compared to the IMF's projection, the government has indicated allocating over Rs 2.5 lakh crore, which is an 18 per cent increase after the conflict with India.

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

“The report revealed that the IMF has slapped 11 more conditions on Pakistan for the sake of just $7 billion lending, taking the total conditions to 50,” the Express Tribune report states.

The IMF has shown the total size of the federal budget at Rs 17.6 trillion, including Rs 1.07 lakh crore for the development spending with an overall deficit of Rs 6.6 lakh crore.

A new condition has also been imposed on the provinces where the four federating units will implement the new Agriculture Income Tax laws through a comprehensive plan, including the establishment of an operational platform for processing returns, taxpayer identification and registration, a communication campaign, and a compliance improvement plan. The deadline for the provinces is June this year.

According to the third new condition, the government will publish a governance action plan based on the recommendations of the Governance Diagnostic Assessment by the IMF. The purpose of the report is to publicly identify reform measures to address critical governance vulnerabilities.

The fourth new condition states that the government will give annual inflation adjustment of the unconditional cash transfer programme to maintain people's real purchasing power.

Another new condition states that the government will prepare and publish a plan outlining the government's post-2027 financial sector strategy, outlining the institutional and regulatory environment from 2028 onwards.

In the energy sector, four new conditions have been introduced. The government will issue notifications of the annual electricity tariff rebasing by July 1st of this year to maintain energy tariffs at cost recovery levels.

It will also issue a notification of the semi-annual gas tariff adjustment to maintain energy tariffs at cost recovery levels by February 15, 2026, according to the report.

Parliament will also adopt legislation to make captive power levy ordinance permanent by the end of this month, according to the IMF. The government has increased the cost for the industries to force them to shift to the national electricity grid.