Operation Sindoor: IMF imposes 11 new conditions on Pakistan, cites India tensions as key risk

The International Monetary Fund (IMF) has slapped 11 new conditions on Pakistan for the release of the next tranche of its ongoing bailout programme. It has additionally warned that tensions with India could heighten risks to the scheme's fiscal, external as well as reform objectives, said the Express Tribune quoting the Staff level report which IMF released on Saturday. These new terms have now increased the total number of conditions under the programme to 50. “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 said.

A major new condition includes parliamentary approval of a Rs 17.6 trillion federal budget for fiscal year 2026, aligned with the IMF’s programme targets. This also includes over Rs 1.07 trillion allocated for development spending. In another key stipulation, Pakistan must also ensure a uniform agriculture income tax framework across all of its four provinces, namely Balochistan, Khyber Pakhtunkhwa, Punjab, and Sindh. This includes systems for taxpayer identification, returns processing, a public awareness campaign, and a compliance improvement strategy — all of this has to be implemented by June 2025.

The IMF has put in place four new conditions in the energy sector, aimed at reducing circular debt and promoting cost recovery: to rebase electricity tariffs annually by 1 July 2025, make semi-annual gas tariff adjustments by 15 February 2026, remove the Rs 3.21 per unit cap on the debt service surcharge, to make the captive power levy ordinance permanent by end of May 2025. The Fund has noted that decades of poor policy and governance have resulted in severe inefficiencies in the power sector.

Pakistan must now prepare and release a plan outlining the post-2027 financial sector strategy, including the regulatory and institutional reforms that will be initiated from 2028. The IMF views this as critical for long-term economic stability, according to the Express Tribune report.

Another condition of the IMF makes it mandatory to publish a proper Governance Action Plan, based on the IMF’s Governance Diagnostic Assessment. This plan must address critical vulnerabilities, enhance transparency, and identify specific reform areas in the country, in public financial management and anti-corruption measures.

The IMF report also acknowledges an 18 per cent projected increase in Pakistan’s defence budget, reaching over Rs 2.5 trillion, following it's recent cross-border hostilities with India. The conflict, after the retaliatory measures taken under India’s ‘Operation Sindoor’ on 7 May in response to the Pahalgam terror attack, escalated over four days before both nations reached an understanding on 10 May.

The IMF has further stressed on phasing out all incentives related to Special Technology Zones and industrial parks by 2035. A full assessment report must be prepared by Pakistan, by December 2025, focusing on streamlining tax regimes and reducing distortions.

In a consumer-centric move, the IMF has asked Pakistan to lift quantitative restrictions on the commercial import of used vehicles. Earlier, the new rules will allow import of cars up to five years old, instead of the present three-year cap. Legislation must be submitted to Parliament by end-July 2025.