In a significant development poised to reshape Pakistan’s economic and political landscape, the International Monetary Fund (IMF) has imposed 11 fresh conditions as part of its ongoing bailout programme, bringing the total number of reform-linked stipulations to 50. These new requirements come amid rising tensions with India, which the IMF warns could jeopardize the fiscal discipline, external stability, and reform goals agreed under the loan facility.
The most critical demand from the IMF includes the parliamentary passage of a Rs 17.6 trillion federal budget, a milestone that must be achieved by the end of June 2025 to ensure continued access to crucial funds. The massive outlay incorporates Rs 1.07 trillion earmarked for development spending, while a considerable Rs 2.414 trillion is allocated for defense—a figure that could increase further, given Pakistan’s recent military posturing following cross-border hostilities with India. The federal government has indicated that the defense budget could exceed Rs 2.5 trillion, reflecting an 18% hike compared to last year’s figures.
This military escalation came after India launched ‘Operation Sindoor’, a retaliatory precision strike operation targeting terror infrastructure inside Pakistan on May 7. This followed the deadly April 22 terror attack in Pahalgam that claimed 26 lives. The situation further deteriorated as Pakistan launched a series of failed counterstrikes on Indian military installations between May 8 and May 10. However, a mutual understanding to cease hostilities was reached on May 10 after four days of intense cross-border missile and drone exchanges.
Even as financial markets responded moderately to the tensions, with the stock exchange holding firm and bond spreads only widening slightly, the IMF’s report took serious note of the geopolitical risks. It stressed that a sustained deterioration in India-Pakistan ties could imperil Pakistan’s ability to meet key economic targets under the programme.
The IMF’s latest demands are comprehensive, ranging from fiscal reforms to energy pricing, tax compliance, and legislative overhauls. One of the most impactful conditions is the removal of the Rs 3.21 per unit cap on the debt servicing surcharge in electricity bills—a move likely to raise costs for consumers already burdened by inefficiencies in the power sector. The global lender has criticized both flawed policy frameworks and poor governance as core contributors to Pakistan’s circular debt crisis.
In the energy domain, the IMF has insisted on annual tariff rebasing for electricity starting July 1 this year, and a biannual gas tariff adjustment by February 15, 2026. It also called for the permanent adoption of a controversial ordinance imposing levies on captive power, aimed at pushing industries back to the national power grid and reducing private generation inefficiencies.
Agricultural reforms are also on the IMF’s radar, with provincial governments now required to fully implement Agriculture Income Tax laws, including the deployment of digital platforms for return processing, taxpayer registration, and compliance management. The provinces have been given until June to operationalize these systems.
Additionally, the IMF has mandated the Pakistani government to publish a governance action plan based on its Diagnostic Assessment report, identifying systemic vulnerabilities and proposing actionable reforms. The plan is expected to serve as a roadmap for institutional strengthening and anti-corruption efforts.
Looking ahead, Islamabad is also expected to develop a post-2027 financial sector strategy by year-end, setting the stage for regulatory clarity and institutional resilience beyond the current programme’s scope. Meanwhile, in a consumer-friendly measure, Pakistan will ease restrictions on the commercial import of used vehicles, allowing cars up to five years old to be imported—a relief for the middle class facing unaffordable new vehicle prices.
In a move with long-term implications, Pakistan is required to draw up a blueprint by the end of 2025 to phase out all incentives currently extended to Special Technology Zones and other industrial parks by 2035. This could have wide-ranging consequences for Pakistan’s investment climate and its ambitions to become a regional tech hub.
The scale and complexity of these new IMF conditions underscore the deep challenges confronting Pakistan’s fragile economy. With fiscal and geopolitical uncertainties intensifying, Islamabad is under unprecedented pressure to comply with stringent international benchmarks, while navigating internal resistance and external threats.
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