IMF’s Big Warning And 11 New Conditions For Pakistan After Op Sindoor: Report

The International Monetary Fund (IMF) has imposed 11 additional conditions on Pakistan for the disbursement of the next portion of its bailout program and cautioned that tensions with India could increase risks to the scheme’s fiscal, external, and reform objectives, as reported by media on Sunday.

The newly set conditions for Pakistan involve parliamentary consent for a fresh Rs 17.6 trillion budget, a rise in the debt servicing surcharge on electricity bills, and the removal of limits on importing used cars older than three years. The report also noted a considerable escalation in tensions between Pakistan and India over the last fortnight; however, the market’s response has been limited, with the stock market holding onto most of its recent profits and spreads experiencing a moderate widening.

The IMF report indicates that the defense budget for the upcoming fiscal year is set at Rs 2.414 trillion, reflecting an increase of Rs 252 billion or 12%. In contrast to the IMF’s estimate, the government has announced a budget increase of over Rs 2.5 trillion, representing an 18% rise, following its confrontation with India earlier this month.

India executed precise strikes under ‘Operation Sindoor’ targeting terrorist infrastructure early on May 7 as a reply to the April 22 Pahalgam terror attack that resulted in 26 fatalities. After the Indian operation, Pakistan tried to strike Indian military installations on May 8, 9, and 10.

India and Pakistan came to an agreement on May 10 to resolve the conflict following four days of heavy cross-border drone and missile attacks.

An article indicated that the IMF imposed 11 additional conditions on Pakistan, raising the overall count to 50. It has established a new requirement to obtain “parliamentary approval for the fiscal year 2026 budget in accordance with the IMF staff agreement to achieve program targets by the end of June 2025.”

A new requirement has been set for the provinces where the four federating units will execute the new Agriculture Income Tax laws via a detailed strategy, which encompasses setting up an operational platform for processing returns, taxpayer identification and registration, a communication initiative, and a plan for enhancing compliance.

The provinces have a deadline of June this year. As per the third new requirement, the government will release a governance action plan informed by the IMF’s Governance Diagnostic Assessment recommendations. The report aims to publicly highlight reform actions to tackle significant governance weaknesses.

A different new condition stipulates that the government will develop and release a plan detailing its financial sector strategy after 2027, specifying the institutional and regulatory framework starting in 2028.

In the energy industry, four new factors have been implemented. The government plans to release announcements regarding the annual adjustment of electricity tariffs by July 1st of this year to keep energy prices at cost recovery rates.

The report states that a notification regarding the semi-annual gas tariff adjustment will be issued by February 15, 2026, to keep energy tariffs at cost recovery levels.

According to the IMF, Parliament is set to enact legislation to ensure that the captive power levy ordinance becomes permanent by the end of this month. The government has raised the expenses for industries to compel them to transition to the national electricity grid.

Parliament will likewise pass a law to eliminate the Rs3.21 per unit ceiling on the debt service surcharge, effectively penalizing honest electricity users to cover the failures of the power industry.

The IMF and the World Bank stated that improper energy policies, along with poor governance by the government, are leading to the buildup of circular debt. The report states that the cap must be removed by the end of June. The IMF has set a requirement that Pakistan will create a strategy based on the evaluation carried out to completely eliminate all incentives related to Special Technology Zones and other industrial parks and zones by 2035. The report must be completed by the end of this year.

Ultimately, under a favorable consumer circumstance, the IMF has requested Pakistan to present to Parliament all necessary laws to remove all quantitative limits on the commercial importation of used motor vehicles (initially restricted to vehicles under five years old) by the end of July. At present, only vehicles that are up to three years old may be imported.