IMF imposes 11 new conditions on Pak, warns of risks to bailout plan: Report

The International Monetary Fund (IMF) has slapped 11 new conditions on Pakistan for the release of the next tranche of its bailout programme and warned that tensions with India could heighten risks to the scheme's fiscal, external, and reform goals, according to a media report on Sunday.

The new conditions imposed on Pakistan include the parliamentary approval of a new Rs 17.6 trillion budget, an increase in the debt servicing surcharge on electricity bills and lifting restrictions on import of more than three-year-old used cars.

The Express Tribune newspaper said the Staff Level report, which the IMF released on Saturday, also said "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 report has shown the defence budget for the next fiscal year at Rs 2.414 trillion, which is higher by Rs 252 billion or 12 per cent.

Compared to the IMF's projection, the government has indicated allocating over Rs 2.5 trillion or an 18 per cent higher budget, after the military confrontation with India early this month.

India carried out precision strikes codenamed Operation Sindoor on terror infrastructure in Pakistan and Pakistan-occupied Kashmir early on 7 May in response to the 22 April Pahalgam terror attack that killed 26 people. Following the Indian action, Pakistan attempted to attack Indian military bases on 8, 9 and 10 May.

India and Pakistan reached an understanding on 10 May to end the conflict after four days of intense cross-border drone and missile strikes, as well as heavy shelling of civilian areas in Jammu and Kashmir by Pakistan, resulting in at least 15 Indian fatalities, including children.

India has claimed that the attack was perpetrated by The Resistance Front, an affiliate of the banned terror group Lashkar-e-Taiba, which is headquartered in Pakistan.

The Express Tribune report said with the 11 new conditions, the total conditions now stand at 50.

The IMF has imposed the 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 IMF report has shown the total size of the federal budget at Rs 17.6 trillion, including Rs 1.07 trillion for development spending.

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.

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 1 July 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 15 February 2026, according to the report.

Parliament will also adopt legislation to make the 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.

Parliament will also adopt legislation to remove the maximum Rs 3.21 per unit cap on the debt service surcharge, which is tantamount to punishing honest electricity consumers to pay for the inefficiency of the power sector.

The IMF and the World Bank dictated that wrong energy policies are causing the accumulation of the circular debt in addition to the government's bad governance. The deadline to remove the cap is the end of June, according to the report.

The IMF has also imposed a condition that Pakistan will prepare a plan based on the assessment conducted to fully phase out all incentives in relation to Special Technology Zones and other industrial parks and zones by 2035. The report has to be prepared by the end of this year.

Finally, in a consumer-friendly condition, the IMF has asked Pakistan to submit to Parliament all required legislation for lifting all quantitative restrictions on the commercial importation of used motor vehicles (initially only for vehicles less than five years old) by the end of July. Currently, only cars up to three years old can be imported.

With PTI inputs