The International Monetary Fund (IMF) has imposed 11 new conditions on Pakistan for the release of the next tranche of its bailout programme. The IMF warned that tensions with India could increase risks to the programme’s fiscal, external and reform goals, PTI reported on Sunday citing media sources.

The new conditions include securing parliamentary approval for a new Rs 17.6 trillion budget. The IMF also requires Pakistan to increase the debt servicing surcharge on electricity bills and lift restrictions on importing used cars older than three years.

The IMF released a Staff Level report on Saturday. It stated, “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 Express Tribune reported.

The report said the IMF added 11 new conditions, bringing the total to 50.

One condition requires Pakistan to get parliamentary approval for the fiscal year 2026 budget aligned with the IMF staff agreement by the end of June 2025.

The IMF report states the total federal budget size as Rs 17.6 trillion, including Rs 1.07 trillion allocated for development spending.

Another condition requires the provinces to implement new Agriculture Income Tax laws through a comprehensive plan. This plan must include an operational platform for tax return processing, taxpayer identification and registration, a communication campaign, and a compliance improvement strategy. The provinces must complete this by June.

A further condition demands that the government publish a governance action plan based on the IMF’s Governance Diagnostic Assessment. This plan should identify reform measures and address critical governance vulnerabilities.

The government must also prepare and publish a post-2027 financial sector strategy, along with plans for institutional and regulatory reforms from 2028 onwards.

The IMF added four new conditions related to the energy sector. The government must issue notifications for annual electricity tariff rebasing by July 1, 2025, to keep tariffs at cost recovery levels.

It must also notify semi-annual gas tariff adjustments by February 15, 2026, to maintain cost recovery for gas tariffs.

Parliament must enact legislation by the end of this month to make the captive power levy ordinance permanent. The government increased this levy to encourage industries to switch to the national electricity grid.

Parliament must also pass a law to remove the Rs 3.21 per unit cap on the debt service surcharge. The IMF said this cap punishes honest electricity consumers by making them pay for the power sector’s inefficiency.

The IMF and World Bank blamed incorrect energy policies and poor governance for Pakistan’s growing circular debt.

The IMF set the deadline to remove the surcharge cap at the end of June.

The IMF also required Pakistan to prepare a plan to fully phase out incentives for Special Technology Zones and other industrial parks by 2035. The plan must be ready by year-end.

In a consumer-friendly move, the IMF requested Pakistan to submit legislation to Parliament to lift all quantitative restrictions on the commercial import of used motor vehicles.

The report noted that tensions between India and Pakistan have significantly increased in the past two weeks. However, the market reaction has been modest so far, with the stock market holding most of its recent gains and spreads widening only moderately.

The IMF report listed Pakistan’s defence budget for the next fiscal year at Rs 2.414 trillion, up Rs 252 billion or 12% from the previous year.

Pakistan indicated plans to increase the defence budget to over Rs 2.5 trillion, an 18% rise, after heightened tensions with India earlier this month.

On May 7, India carried out precision strikes under Operation Sindoor targeting terror infrastructure in response to the April 22 Pahalgam terror attack that killed 26 people.

Pakistan attempted to attack Indian military bases on May 8, 9, and 10.

Both countries agreed to de-escalate on May 10, ending four days of intense cross-border drone and missile strikes.