In a no-holds-barred move, the International Monetary Fund (IMF) has slapped Pakistan with 11 fresh conditions for the release of the next tranche under its bailout programme—pushing the total number of conditions to a staggering 50. Alongside, the IMF has issued a stark warning: escalating hostilities with India could severely jeopardise Pakistan’s fiscal stability, external balance, and reform commitments.
According to a media house, which cited the IMF’s Staff Level report released on Saturday, the Fund made it explicitly clear 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.
These tensions have intensified notably over the past fortnight. Following the brutal April 22 terror attack in Pahalgam that killed 26 people, India launched precision strikes under ‘Operation Sindoor’ on May 7, targeting terror infrastructure. Pakistan retaliated by attempting to strike Indian military installations on May 8, 9, and 10. The skirmishes escalated into four consecutive days of intense cross-border drone and missile exchanges, finally subsiding with a mutual understanding reached on May 10.
Surprisingly, markets held steady despite the geopolitical turbulence, with stock market gains largely intact and credit spreads only moderately widened, the IMF noted. Domestically, the IMF’s report reveals that Pakistan’s defence budget for the next fiscal year is projected at Rs 2.414 trillion—a sharp 12% rise, or Rs 252 billion more. However, the government has indicated an even more aggressive allocation of over Rs 2.5 trillion, up 18%, in the aftermath of the India standoff earlier this month.
Among the 11 newly imposed demands, the IMF requires the parliamentary approval of a massive Rs 17.6 trillion federal budget, which includes Rs 1.07 trillion earmarked for development expenditures. This is to be ratified by end-June 2025 in strict alignment with IMF staff targets.
In the energy sector, four major directives have been added. Firstly, by July 1, the government must notify annual electricity tariff rebasing to ensure tariffs reflect full cost recovery. Secondly, a semi-annual gas tariff adjustment must be enforced by February 15, 2026. Thirdly, Parliament is to pass legislation making permanent the captive power levy ordinance—a move designed to force industries off self-generation and onto the national grid. Finally, Pakistan must lift the Rs 3.21 per unit cap on the debt service surcharge—a burden the IMF bluntly frames as making “honest electricity consumers” pay for systemic inefficiencies.
The IMF and World Bank have categorically blamed “wrong energy policies” and chronic “bad governance” for the ballooning circular debt. The deadline to eliminate the surcharge cap is end of June.
A significant new fiscal condition demands the four provinces to enforce new Agriculture Income Tax laws, complete with an operational platform for tax processing, taxpayer registration, a public awareness campaign, and compliance oversight—all to be in place by June this year.
In governance, the IMF insists that the government publish a Governance Action Plan, based on its Diagnostic Assessment, to publicly chart out reforms that address deep-rooted institutional vulnerabilities.
Looking beyond 2027, Pakistan is now required to publish a comprehensive post-2027 financial sector strategy, outlining regulatory and institutional frameworks beginning 2028 onwards.
On the trade front, the IMF has offered a rare consumer-friendly directive: quantitative restrictions on used car imports must be lifted. The Parliament must approve all necessary legislation to allow the import of used vehicles up to five years old, by the end of July. Presently, only cars up to three years old are permissible for commercial importation.
A forward-looking demand has also been laid down: by year-end, Pakistan must submit a detailed plan for phasing out all incentives tied to Special Technology Zones and other industrial parks, with a complete rollback deadline of 2035.
In sum, the IMF’s latest tranche is loaded with sweeping structural demands—from tax reforms and energy pricing corrections to defence spending oversight and geopolitical stability—making it clear that compliance will come at a high domestic and political cost for Islamabad.
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