IMF Imposes 11 New Conditions on Pakistan Amid Bailout, Cites India Tensions
The International Monetary Fund (IMF) has imposed 11 new conditions on Pakistan for its next $1 billion bailout tranche, warning that rising tensions with India pose significant risks.
The IMF has significantly escalated its terms for Pakistan’s financial assistance, taking the total number of bailout conditions to 50. The newly imposed requirements span energy reforms, fiscal restructuring, and enhanced taxation, with several measures aimed at long-term economic discipline.
The Fund’s Staff Level Report, released on Saturday, revealed concerns over “rising tensions between India and Pakistan,” especially following India’s Operation Sindoor and the Pahalgam terror attack. The report stated that “sustained or worsening tensions” could jeopardize fiscal, external, and reform targets set under the programme.
Despite India’s opposition and abstention during the IMF vote, the Fund approved the $1 billion disbursement as part of Pakistan’s ongoing $3 billion package agreed last year.
India strongly criticised the IMF’s decision. Defence Minister Rajnath Singh expressed concern that the funds could be diverted for terror activities, calling the move “dangerous” and “irresponsible.” India’s abstention in the IMF vote was a symbolic protest against what it views as financial aid to a nation with a history of using such resources against regional peace.
India launched Operation Sindoor on May 7 in response to a deadly terrorist strike in Pahalgam that killed 26 civilians. Following the operation, Pakistan retaliated with drone strikes and cross-border shelling, escalating regional tensions before a ceasefire was announced on May 10.
Key New IMF Conditions
The 11 new conditions touch multiple sectors of Pakistan’s economy:
- Fiscal Reforms: Pakistan must pass a Rs 17.6 trillion budget for FY26. A significant portion—Rs 2.414 trillion—is earmarked for defence, with the actual allocation expected to rise further.
- Energy Sector Changes: The IMF has called for annual tariff rebasing by July 1 and a semi-annual gas tariff adjustment by February 2026. The cap on the Rs 3.21/unit debt service surcharge must be lifted.
- Taxation and Compliance: Provinces are required to enforce Agriculture Income Tax laws through new systems for taxpayer registration and compliance.
- Import Restrictions: Pakistan must lift import restrictions on used cars over three years old, initially extending to five years, with necessary legislation to be passed by end of July.
- Governance & Transparency: The government must release a post-2027 financial strategy and publish a governance action plan based on IMF diagnostics.
In addition, the IMF is pushing for the phasing out of incentives for Special Technology Zones by 2035.
Pakistan has turned to the IMF 25 times since becoming a member, often relying on bailouts to manage recurring fiscal crises. In 2023, the IMF averted Pakistan’s looming default with a $3 billion short-term loan.
However, systemic issues such as poor tax collection, energy sector inefficiencies, and military overspending continue to plague the economy. The country’s foreign reserves remain fragile, and inflation remains persistently high.
The IMF report warned that geopolitical tensions with India could derail Pakistan’s economic stabilisation. While the stock market has remained resilient so far, experts fear sustained hostilities could scare away foreign investment.
India, meanwhile, maintains that any future terror-linked provocation will invite a strong and “decisive” response.
