IMF slaps 11 new conditions on Pak, warns of Op Sindoor effect

The International Monetary Fund (IMF) has imposed 11 new conditions on Pakistan for the release of next instalment of its bailout package, cautioning that the rising tensions with India may threaten the programme’s fiscal, external, and reform objectives, media reports have said.

Islamabad apes India’s outreach

Hours after India decided to send its delegations to key partner countries to put across its resolve to tackle terrorism, Pakistan PM Shehbaz Sharif announced that he would send a team to world capitals to present the country’s stance. He entrusted the leadership of the delegation to Bilawal Bhutto Zardari.

The conditions include getting parliamentary approval of a Rs 17.6 trillion budget, raising the debt servicing surcharge on electricity bills, and removing the ban on importing used cars that are older than three years.

With this, the total number of conditions imposed on Pakistan has gone up to 50.

Citing a news report from a Pakistan daily, agencies reported that the IMF’s staff level report released on May 17 says 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 also mentions that while tensions between Pakistan and India have increased sharply over the past two weeks, the market response has been relatively calm, with the stock market holding on to most of its recent gains and spreads only widening slightly.

The report reveals that the Pakistan’s defence budget for the next fiscal year has been set at Rs 2.414 trillion, marking an increase of Rs 252 billion or 12%. The IMF has added a new condition requiring “parliamentary approval of the fiscal year 2026 budget in line with the IMF staff agreement to meet programme targets by the end of June 2025”. The report shows that the total size of the federal budget is Rs 17.6 trillion, including Rs 1.07 trillion for development expenditure.

Additionally, a new condition has been imposed on the provinces, requiring these to implement new agriculture income tax laws. This will involve creating a comprehensive plan with an operational platform for processing returns, identifying and registering taxpayers, launching a communication campaign, and improving compliance. The provinces will have to meet the new condition by June.

The government will further have to release a governance action plan based on the IMF’s governance diagnostic assessment. It is aimed at publicly highlighting reform actions needed to address major governance issues.

It will have to prepare and publish a plan outlining its financial sector strategy for the period after 2027, covering the institutional and regulatory framework for the years starting in 2028.

Four new conditions have been introduced for the energy sector. The government must issue notifications for the annual electricity tariff adjustments by July 1 to ensure energy prices were set at cost recovery levels.

It must also notify the semi-annual gas tariff adjustment by February 15, 2026, to keep energy tariffs aligned with cost recovery levels, according to the report. Parliament will be required to pass legislation by the end of this month to make the captive power levy ordinance permanent. The government has raised costs for industries to encourage them to transition to the national electricity grid.

It is also expected to pass legislation to remove the Rs 3.21 per unit cap on the debt service surcharge, a measure that critics argue unfairly forces honest electricity consumers to cover the power sector’s inefficiencies.

The IMF and World Bank have highlighted that ineffective energy policies, along with poor governance, are contributing to the rise of circular debt. The deadline to eliminate the cap is June-end, as per the report.

Another condition requires Pakistan to create a plan based on an assessment to completely phase out all incentives related to special technology zones, and other industrial parks and zones by 2035. The plan must be submitted by the end of this year.

In a consumer-friendly step, the International Monetary Fund has instructed Pakistan to submit the necessary legislation to Parliament by July-end to lift all restrictions on the commercial import of used cars, initially limited to those under five years old. At present, only cars that are up to three years old can be imported.

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