Islamabad: The International Monetary Fund (IMF) has imposed 11 additional conditions on Pakistan for the release of the next tranche under its bailout programme and cautioned that escalating tensions with India could threaten the scheme’s fiscal, external, and reform objectives, The Express Tribune reported on Sunday.

Among the new demands is the parliamentary approval of a Rs 17.6 trillion budget, a hike in the debt servicing surcharge on electricity bills, and the lifting of import restrictions on used cars older than three years.

Citing its Staff Level report released on Saturday, the IMF said, “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 noted a marked increase in India-Pakistan tensions over the past two weeks.

However, the market response has so far been muted, with the stock market holding on to most of its recent gains and spreads only slightly widening.

The IMF report pegged Pakistan’s defence budget for the upcoming fiscal year at Rs 2.414 trillion, an increase of Rs 252 billion or 12%.

The government, however, has indicated an allocation exceeding Rs 2.5 trillion—18% higher—after a flare-up with India earlier this month.

India had launched precision strikes under 'Operation Sindoor' on May 7, targeting terror infrastructure in response to the April 22 Pahalgam attack that claimed 26 lives.

Pakistan retaliated with attempted strikes on Indian military bases from May 8 to 10.

The conflict ended on May 10 following four days of intense cross-border drone and missile exchanges.

The Express Tribune reported that with the 11 latest additions, the IMF’s total conditions now stand at 50.

One new requirement mandates parliamentary approval of the FY26 budget in alignment with the IMF agreement, to be fulfilled by end-June 2025.

The Rs 17.6 trillion federal budget includes Rs 1.07 trillion earmarked for development expenditure.

Another condition requires all four provincial governments to roll out a comprehensive implementation of the new Agriculture Income Tax laws.

This includes setting up a platform for return processing, taxpayer registration, communication outreach, and a compliance improvement plan, all to be completed by June.

A separate provision directs the government to release a governance action plan based on recommendations from the IMF’s Governance Diagnostic Assessment, aiming to spotlight and resolve systemic governance issues.

Additionally, the IMF has instructed Pakistan to draw up and publish its post-2027 financial sector strategy, outlining the institutional and regulatory framework for 2028 and beyond.

Four new measures target the energy sector.

These include the issuance of annual electricity tariff rebasing notifications by July 1 and semi-annual gas tariff adjustment notices by February 15, 2026, to ensure cost recovery levels.

The government must also make permanent the captive power levy ordinance through parliamentary legislation by the end of this month. This move is intended to push industries to shift to the national grid by raising their operational costs.

Another legislative change will see the removal of the Rs 3.21 per unit cap on the debt service surcharge, a policy the IMF describes as effectively penalising paying consumers for inefficiencies in the power sector. This amendment is also due by the end of June.

Both the IMF and World Bank have blamed flawed energy policies and governance failures for the accumulation of circular debt.

Furthermore, Pakistan must devise a plan, based on an assessment, to eliminate all incentives linked to Special Technology Zones and industrial parks by 2035. This report must be ready by the end of 2025.

In a more consumer-oriented condition, the IMF has asked Pakistan to legislate the removal of all quantitative restrictions on commercial imports of used vehicles, initially for those less than five years old, by the end of July. Presently, only vehicles up to three years old are allowed.