After India’s Objections, IMF Imposes 11 New Conditions on Pakistan for New Bailout Programme
Manas Dasgupta
NEW DELHI, May 18: Apparently taking cognisance of India/s strong objections, 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, media reports said on Sunday.
This came after the IMF decided in favour of a $1 billion bailout for Pakistan, despite India’s protests and concerns that these funds would be used for cross-border terrorism. India had criticised the decision to grant Pakistan the bailout package and abstained from the vote, saying it sends a dangerous message to the global community.
Pakistan relies heavily on IMF bailout packages to support its declining foreign reserves. The country received crucial assistance from the fund last year, when it was on the brink of bankruptcy, with the IMF stepping in to provide a $3 billion short-term loan that helped avert a financial collapse.
On Friday, Defence Minister Rajnath Singh had questioned the IMF disbursement, saying Pakistan would use the money for terror funding. Pakistan has received at least 25 bailout loans since becoming a member of the fund, yet its economic crises have shown scarce improvement.
In its report released Saturday, the IMF said the Pakistani authorities have reiterated their strong commitment to the program, which is “designed to help restore economic stability, build resilience through stronger reserve buffers, and advance reforms to create stronger and inclusive growth.” The Washington-headquartered multilateral agency sought to clarify that disbursements under the EFF are dedicated to build reserves, adding the facility’s fiscal and reserve goals (including floors on social spending) limit the space for non-priority spending and the use of reserves to finance imports.
“Careful Fund communication will be essential to underscore the Fund’s neutral role and avoid misperceptions about its lending activities,” the Fund said. 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 media report 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%. Compared to the IMF’s projection, the government has indicated allocating over Rs 2.5 trillion or an 18% higher budget, after confrontation with India early this month.
India carried out precision strikes under ‘Operation Sindoor’ on terror infrastructure early on May 7 in response to the April 22 Pahalgam terror attack killing 26 people. Following the Indian action, Pakistan attempted to attack Indian military bases on May 8, 9 and 10. India and Pakistan reached an understanding on May 10 to end the conflict after four days of intense cross-border drone and missile strikes.
The media reports said the IMF slapped 11 more conditions on Pakistan, taking the total conditions to 50.
It 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 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 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 Rs3.21 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 the 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.
On May 9, the Executive Board of the IMF had completed the first review of Pakistan’s economic reform program supported by the EFF arrangement, allowing for an immediate disbursement of around $1 billion, bringing total disbursements under the arrangement to about $2.1 billion. In addition, the IMF Executive Board had approved a tranche of $1.4 billion under the Resilience and Sustainability Facility (RSF).
India had abstained from voting in the Board meeting as it raised concerns over the efficacy of IMF programs for Pakistan given its “poor track record” and also on the possibility of “misuse of debt financing funds for state-sponsored cross-border terrorism.” Before the meeting, India’s Foreign Secretary Vikram Misri had said the Fund’s Board should look “deep within” and take into account the facts before generously bailing out the country.
