ISLAMABAD:
The International Monetary Fund (IMF) has slapped 11 new conditions on Pakistan, including approval of a new Rs17.6 trillion worth budget, increasing debt servicing surcharge on electricity bills and lifting restrictions on the import of more than three years old used cars.
The Staff Level report, which the IMF released on Saturday, also said that “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 further stated that tensions between Pakistan and India have risen significantly over the past two weeks but so far the market reaction has been modest with the stock market retaining most of its recent gains and spreads widening moderately.
The IMF has shown the defense budget for the next fiscal year at Rs2.414 trillion, which is higher by Rs252 billion or 12%. Compared to the IMF’s projection, the government has indicated allocating over Rs2.5 trillion or 18% higher budget after India’s naked aggression.
The report revealed that the IMF has slapped 11 more conditions on Pakistan for the sake of just $7 billion lending, taking the total conditions to 50.
It has imposed a new condition of securing “parliamentary approval of the fiscal year 2026 budget in line with the IMF staff agreement to meet programme targets by end-June 2025”.
The IMF has shown the total size of the federal budget at Rs17.6 trillion, including Rs1.07 trillion for the development spending. The Express Tribune had reported a few days ago that the government would present over Rs17.5 trillion budget.
The IMF has shown interest spending at Rs8.7 trillion, the primary budget surplus at Rs2.1 trillion and the overall deficit at Rs6.6 trillion.
A new condition has also been imposed on the provinces where the four federating units will implement the new Agriculture Income Tax laws through a comprehensive plan, including the establishment of an operational platform for processing returns, taxpayer identification and registration, a communication campaign, and a compliance improvement plan. The deadline for the provinces is June this year.
According to the third new condition, the government will publish a governance action plan based on the recommendations of the Governance Diagnostic Assessment by the IMF. The purpose of the report is to publicly identify reform measures to address critical governance vulnerabilities.
The fourth new condition states that the government will give annual inflation adjustment of the unconditional cash transfer programme to maintain people real purchasing power
Another new condition states that the government will prepare and publish a plan outlining the government’s post-2027 financial sector strategy, outlining the institutional and regulatory environment from 2028 onwards.
In the energy sector, four new conditions have been introduced. The government will issue notifications of the annual electricity tariff rebasing by July 1st of this year to maintain energy tariffs at cost recovery levels.
It will also issue notification of the semi-annual gas tariff adjustment to maintain energy tariffs at cost recovery levels by February 15, 2026, according to the report.
Parliament will also adopt legislation to make captive power levy ordinance permanent by the end of this month, according to the IMF. The government has increased the cost for the industries to force them to shift to the national electricity grid.
Parliament will also adopt legislation to remove the maximum Rs3.21 per unit cap on the debt service surcharge, which is tantamount to punishing honest electricity consumers to pay for the inefficiency of the power sector. The IMF and the World Bank dictated that wrong energy policies are causing the accumulation of the circular debt in addition to the government’s bad governance. The deadline to remove the cap is the end of June, according to the report.
The IMF has also imposed a condition that Pakistan will prepare a plan based on the assessment conducted to fully phase out all incentives in relation to Special Technology Zones and other industrial parks and zones by 2035. The report has to be prepared by the end of this year.
In a consumer-friendly condition, the IMF has asked Pakistan to submit to the Parliament all required legislation for lifting all quantitative restrictions on the commercial importation of used motor vehicles (initially only for vehicles less than five years old by end of July.
Currently only up to three years old cars can be imported and there are many non-tariff barriers to discourage the import. The purpose of lifting these restrictions is liberalizing trade and increasing vehicle affordability, said the IMF.
In addition to imposing new conditions, the IMF has also made adjustments in the earlier conditions.
Programme Implementation
The IMF has extended the deadlines of four conditions whose implementation had been delayed. The lender said that the government met all seven quantitative performance criteria for end-December 2024. These were floors on net international reserves of the SBP; targeted cash transfer spending; the number of new tax returns from new filers, the ceilings on net domestic assets of the SBP; the SBP’s FX swaps; the general government primary budget deficit; and government guarantees.
The majority of indicative targets were met at end-December, including the ceilings on the aggregate provincial primary budget deficit; net accumulation of tax refund arrears; and power sector payment arrears; the floors on revenues collected by provincial revenue authorities; and the weighted average maturity of local currency debt securities. However, the conditions on the government health and education spending; net tax revenues collected by the FBR; and net tax revenues collected from retailers under the Tajir Dost scheme were missed, said the IMF.
The respective governments also met nine structural benchmarks including on approval of a National Fiscal Pact, improving safeguards for monetary policy operations and approval of amendments to bank resolution and deposit legislation.
But the structural benchmark on provincial Agricultural Income Tax legislation was not met at the end-October, but this legislation was subsequently passed in February 2025. Another two structural benchmarks were missed due to delays in passing amendments to the Civil Servants and Sovereign Wealth Fund (SWF) Acts.
Two SBs relating to resolving undercapitalized banks and to captive power producers were missed, but subsequent policy actions are expected to accomplish the underlying objectives, said the IMF.
