IMF tightens conditions for Pakistan to get fresh loans

The International Monetary Fund (IMF) has tightened the loan conditions for Pakistan for future funding, and warned of risks to the South Asian nation’s economy from US President Donald Trump’s tariff policies and escalating tensions with India.

Pakistan must seek parliament nod for the federal budget for the next fiscal year in line with the IMF agreement by June, implement agricultural income tax reforms across all provinces, and draft a plan for phasing out industrial incentives by the end of the year, the Washington-based multilateral institution said in its report.

The lender has also sought timely electricity and gas tariff adjustments — currently hindering full cost recovery in the energy sector — and proposed a legislation to convert majority of the energy sector debt in a bid to reduce financial burden on power firms.

Pakistan’s economy is trying to stage a turnaround after it averted a default in 2023. However, large interest payments and uncertainties due to global trade disruptions continue to be an overhang. Last year, the IMF estimated that the nation will need more than $100 billion in external financing until 2029.

Earlier this month, the lender’s executive board disbursed roughly $1 billion from a broader $7 billion program agreed last year and gave its nod for a $1.4 billion loan to support climate resilience. The funds, crucial to bolster the nation’s foreign exchange reserves and buffer its fragile economy, came despite India’s opposition following the attacks in Kashmir.

The IMF said rising tensions between the nuclear-armed nations, if sustained or deteriorate further, could heighten risks to the fiscal, external and reform goals for Pakistan. 

“Reputational risks could also come from any perceived lack of evenhanded or if there was a perceived misuse of Fund disbursements,” it added. 

India and Pakistan have a history of bitter relations over the disputed region of Kashmir, which they both rule in part but claim in full. On May 10, the two nations agreed to a ceasefire after they conducted tit-for-tat military strikes bringing them to the brink of war.