The International Monetary Fund (IMF) has imposed 11 additional conditions on Pakistan under its US$2.4bn (billion) loan programme, raising the total to 50 as the country seeks to secure further disbursements amid a precarious economic situation and rising geopolitical tensions. The fresh conditions were outlined in the IMF’s staff-level report released on 17 May 2025 and are primarily linked to fiscal reforms, energy sector restructuring and governance improvements.
Among the new demands, Pakistan must secure parliamentary approval for a Rs17.6tn (trillion) federal budget for the upcoming fiscal year. The proposed budget includes a development outlay of Rs1.07tn and an overall fiscal deficit of Rs6.6tn. The IMF has also flagged a sharp increase in Pakistan’s defence expenditure, which is projected to reach Rs2.41tn — an increase of Rs252bn or 12% over the previous year. The Pakistani government has reportedly signalled its intention to raise this further to more than Rs2.5tn, marking an 18% hike following recent hostilities with India.
The IMF report explicitly warned that rising tensions between India and Pakistan pose a serious threat to the success of the extended fund facility. “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 stated.
The Fund also expressed concern that the political climate may erode confidence and disrupt progress toward agreed benchmarks. It further cautioned against reputational damage in the event IMF funds are perceived to be misused or unevenly implemented, stressing the need for transparency and accountability in Pakistan’s handling of external support.
The new set of conditions includes raising surcharges on electricity bills to reduce energy sector losses and making the captive power levy permanent through parliamentary legislation. IMF has also required the Pakistan government to lift the ban on the import of older used vehicles, a restriction that was previously put in place to conserve foreign exchange.
In the energy sector, four new conditions have been introduced by IMF. These include issuing notifications for annual electricity tariff rebasing by 1 July 2025, implementing a semi-annual gas tariff adjustment by 15 February 2026, and compelling industrial units to shift to the national grid by making alternative power sources more expensive.
Governance reforms also form a key component of the new conditions imposed by IMF on Pakistan. The government must publish a governance diagnostic assessment by the IMF and formulate a corresponding action plan to address systemic vulnerabilities. Additionally, Pakistan is required to implement annual inflation adjustments to its unconditional cash transfer schemes in order to protect the real purchasing power of vulnerable populations. Another condition mandates publication of a long-term financial sector strategy that outlines institutional and regulatory priorities from 2028 onwards.
At the provincial level, all four federating units are required to enact new agricultural income tax laws. This includes setting up a functional platform for taxpayer registration, return filing, and enforcement, along with a communications campaign to improve compliance. For Pakistan, the deadline for meeting this condition is June this year.
The IMF’s warnings come amid deteriorating India-Pakistan ties, particularly following the 22 April 2025 terror attack in Jammu and Kashmir (J&K)’s Pahalgam region, in which 26 people were killed. India has since stepped up pressure on international financial institutions to monitor the use of aid extended to Pakistan. Indian defence minister Rajnath Singh recently described IMF support to Pakistan as akin to 'terror funding' and said it undermines regional security efforts.
Despite the tensions, IMF noted that market reactions in Pakistan have remained modest, with the stock market holding most of its recent gains and bond spreads widening only slightly. However, the cumulative impact of 50 stringent conditions now attached to IMF assistance places significant pressure on the Pakistani government to deliver structural reforms, improve fiscal discipline, and avoid further regional instability.
With the next IMF programme review scheduled for September, Islamabad faces a narrow window to demonstrate compliance and maintain the flow of vital international financial support.
At last, IMF is insisting on good governance rather than insisting that the market should be the determinant of policy.