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Updated 18 May 2025 at 14:41 IST

IMF Imposes 11 New Conditions on Pakistan Amid Rising India Tensions: Reports

The IMF flagged the escalating tensions between India and Pakistan as a major risk to the success of its reform programme in Pakistan.

Reported by: Isha Bhandari
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New Delhi: The International Monetary Fund (IMF) has imposed 11 fresh conditions on Pakistan for the release of the next tranche of its bailout programme, according to a report. The IMF’s Staff Level Report, released on Saturday, outlines significant policy and fiscal adjustments Pakistan must make to stay on track with the programme.

This raises the total number of conditions to 50.

The IMF flagged the escalating tensions between India and Pakistan as a major risk to the success of its reform programme in Pakistan. According to the report, "Rising tensions between India and Pakistan, if sustained or deteriorate further, could heighten risks to the fiscal, external and reform goals of the programme."

While the stock market has remained largely stable, the IMF warned that further deterioration in bilateral relations could have serious economic repercussions.

These concerns follow India’s ‘Operation Sindoor’ on May 7, which targeted terror infrastructure in Pakistan in retaliation for the April 22 Pahalgam terror attack that claimed 26 lives. Pakistan responded with attempted attacks on Indian military bases from May 8 to 10. The situation de-escalated after both countries reached a mutual understanding on May 10.

One of the most significant conditions is the parliamentary approval of a Rs 17.6 trillion federal budget, which must align with IMF’s programme targets by end-June 2025. Of this, Rs 1.07 trillion is earmarked for development expenditure.

The IMF also highlighted an increased defence budget, pegged at Rs 2.414 trillion a 12% jump though Pakistani authorities reportedly aim to spend over Rs 2.5 trillion (an 18% increase) due to heightened tensions with India.

A new condition requires provincial governments to implement Agriculture Income Tax laws via a comprehensive plan. This includes:

Establishing a platform for taxpayer registration

Running a communication campaign

Launching a compliance improvement strategy

The deadline for this implementation is June 2025.

Governance, Energy Sector, and Industrial Reforms

The IMF is pushing for greater transparency and governance improvements, asking Pakistan to:

Publish a Governance Action Plan based on IMF's Diagnostic Assessment

Prepare a post-2027 financial sector strategy, defining institutional and regulatory reforms from 2028 onward

In the energy sector, four new reforms have been mandated:

1. Annual electricity tariff rebasing notifications by July 1, 2025

2. Semi-annual gas tariff adjustment by February 15, 2026

3. Permanent adoption of the Captive Power Levy ordinance by end-May

4. Removal of the Rs 3.21/unit cap on the debt servicing surcharge by end-June

These measures aim to align energy prices with cost-recovery levels and eliminate subsidies that burden the national budget.

Industrial Zones and Import Restrictions Under Scrutiny

The IMF has directed Pakistan to prepare a strategy by the end of 2025 to phase out all incentives related to Special Technology Zones and Industrial Parks by 2035.

In a potentially consumer-friendly move, the IMF has also asked for the removal of restrictions on the import of used vehicles, initially allowing import of cars up to five years old by the end of July 2025. Currently, imports are restricted to vehicles under three years old.

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Published 18 May 2025 at 14:41 IST