The International Monetary Fund (IMF) has reportedly imposed 11 new conditions on Pakistan as part of its program, bringing the total number of conditions to 50. These new stipulations come as Pakistan prepares to approve a federal budget of Rs 17.6 trillion for the upcoming fiscal year.
Details of the new conditions were outlined in a recent IMF Staff Level Report. Among the key requirements is the parliamentary approval of the Rs 17.6 trillion budget. The IMF projects the budget to include Rs 1.07 trillion for development expenditures, with interest expenses estimated at Rs 8.7 trillion, a primary budget surplus of Rs 2.1 trillion, and an overall deficit of Rs 6.6 trillion.
Broad Range of Reforms Demanded
The new conditions span various sectors, including energy, taxation, trade, governance, and social safety nets. Significant demands include increasing the debt servicing surcharge on electricity bills and lifting restrictions on the import of used cars older than three years.
In the energy sector, four new conditions have been introduced. These entail annual rebasing of the power tariff by July 1st of the current year to ensure cost recovery, notifying semi-annual gas tariff adjustments by February 15, 2026, also aimed at achieving cost recovery, legislating by the end of the current month to make the captive power levy ordinance permanent, and removing the maximum cap of Rs 3.21 per unit on the debt service surcharge on electricity bills by the end of June.
Taxation and Governance
On the taxation front, a new condition mandates provinces to implement new agricultural income tax laws through a comprehensive plan by the end of June. This plan involves establishing an operational platform for return processing and taxpayer identification.
In terms of governance, the IMF requires the government to publish a governance action plan based on the Fund’s diagnostic assessment recommendations.
Social Safety Nets and Financial Sector
To protect vulnerable populations, a new condition calls for an annual inflation adjustment for the unconditional cash transfer program to maintain real purchasing power. Additionally, the IMF requires the government to develop a plan outlining the post-2027 financial sector strategy and regulatory environment.
Trade and Industrial Zones
Further conditions include the submission of legislation to parliament to lift quantitative restrictions on the commercial import of used motor vehicles, initially for vehicles less than five years old by the end of July. This measure aims to liberalize trade and enhance affordability. The IMF also requires Pakistan to prepare a plan by the end of the year, based on a study, to phase out incentives for Special Technology Zones and other industrial parks by 2035.
IMF Notes Geopolitical Risks and Defense Spending
The IMF report also highlighted that rising tensions between Pakistan and India, if sustained or exacerbated, could heighten risks to the program’s fiscal, external, and reform objectives. The report noted the recent increase in tensions but observed a relatively modest market reaction so far.
The IMF projected Pakistan’s defense budget for the next fiscal year at Rs 2.414 trillion, a 12 percent increase. The report also mentioned that the Pakistani government has indicated allocating over Rs 2.5 trillion, an 18 percent increase, for defense following recent developments.
The report also touched upon some missed or delayed performance criteria and structural benchmarks related to health and education spending, tax collection targets, and certain legislative amendments, while acknowledging that subsequent policy actions are expected to address the underlying objectives of some of these benchmarks.
