IMF’s Long Rope: 11 New Conditionalities Leave Pakistan Gasping Post Indo-Pak Ceasefire

What Pakistan’s elite perceived as a diplomatic win has quickly unravelled into a fiscal and political death trap. The $1 billion disbursement is a loaded rope handed over with clinical precision.

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By Karan Bir Singh Sidhu
Retired IAS Officer (Punjab Cadre), Former Special Chief Secretary, Government of Punjab;
MA (Economics), University of Manchester, UK;
Writes on global economic policy, strategic affairs, and governance reform.

IMF’s Long Rope: 11 New Conditions Leave Pakistan Gasping Amid Indo-Pak Tensions

The International Monetary Fund’s (IMF) latest bailout has turned what Pakistan thought was a lifeline into a straitjacket. Just days after disbursing a $1 billion tranche under its Extended Fund Facility, the IMF has imposed 11 stringent new conditionalities on Islamabad. This development is being seen not just as part of fiscal discipline but as a direct outcome of India’s strong written objections, diplomatically conveyed through its new IMF Executive Director, Parameswaran Iyer, and the quiet but intense lobbying that followed the cross-border escalation earlier this month, where Pakistan was at the receiving end of India’s wrath all under the umbrella of “Operation Sindoor”.

Far from a cause for celebration, this financial "support" is now being compared to a long rope given to a desperate man—not to rescue, but to hang himself with. For Pakistan’s political and military elite, who had already begun patting themselves on the back for securing “easy money,” the IMF’s revised terms are a rude awakening.

From Airstrikes to Abstention: The Indian Role in IMF Diplomacy

The timeline is crucial. On May 7, 2025, India carried out precision strikes under Operation Sindoor, retaliating for the Pahalgam terror attack that left 26 dead. Pakistan's attempts at counter-escalation on May 8, 9, and 10 only resulted in a swift de-escalation agreement, at their desperate pleading. But the real action was unfolding in conference rooms in Washington DC and corridors of multilateral institutions.

As India’s official representative at the IMF, Parameswaran Iyer led a firm diplomatic objection to the disbursement of funds to Pakistan, citing risks of diversion to destabilising activities and a consistent record of IMF condition violations. While IMF procedural norms only allow member states to vote in favour or abstain—and India abstained, it did so with an unambiguous written dissent.

This move, while symbolic on the surface, set the wheels in motion for a toughened stance within the IMF, culminating in the expanded conditionalities announced days later.

The 11 New IMF Conditions: A Noose of Reforms

What Islamabad assumed would be another loosely monitored injection of capital has instead turned into the most invasive and politically toxic set of reforms ever demanded by the Fund. The 11 new conditions go far beyond fiscal tinkering—they challenge the very political and federal structure of Pakistan’s economic system:

1. Parliamentary Approval of Budget
   Mandatory approval of a PKR 17.6 trillion federal budget for FY2026 by June 2025.

2. Agricultural Income Tax Across Provinces
   Nationwide implementation of Agricultural Income Tax—a red flag issue in a country dominated by feudal elites and military-backed agrarian interests.

3. Governance Action Plan
   Submission of a comprehensive Governance Action Plan aligned with IMF recommendations.

4. Post-2027 Financial Sector Strategy
   Articulation of a post-2027 roadmap for Pakistan’s financial sector reforms and stability.

5. Annual Electricity Tariff Rebasing
   Repricing of electricity annually, starting 1 July 2025, to reflect real costs.

6. Semi-Annual Gas Tariff Adjustments
   Compulsory biannual increases in gas tariffs from February 2026 onward.

7. Permanent Captive Power Levy
   Legislation to permanently impose the captive power levy, removing all temporary waivers.

8. Debt Surcharge Cap Removal
   Elimination of the PKR 3.21/unit cap on debt service surcharges, shifting full burden onto consumers.

9. Technology Zone Incentive Phase-out
   Gradual withdrawal of Special Technology Zone incentives by 2035, dampening tech investment appeal.

10. Used Vehicle Import Liberalisation
    Lifting import bans on used cars less than five years old, altering trade protections.

11. Macro-Fiscal Risk Monitoring
    Enhancement of state capacity to monitor geopolitical and fiscal risks, especially concerning Indo-Pak tensions.

Each condition pierces deep into Pakistan’s domestic political economy, particularly affecting entrenched stakeholders in the provinces and the military-industrial complex. The requirement for agricultural income tax, in particular, strikes at the heart of Pakistan’s rural power structure—a move that would be political suicide for any elected government.

Regional Risk: IMF’s Geopolitical Warning to Pakistan

In an unusually blunt caveat, the IMF has explicitly linked the sustainability of its financial programme to Indo-Pak relations. Its staff-level report warns 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.”

This marks a turning point in international financial governance. For the first time, Pakistan’s access to multilateral funding is explicitly conditional on its geopolitical behaviour, especially vis-à-vis India. New Delhi has succeeded in bringing the security-finance nexus into the multilateral fold—a longstanding objective of Indian diplomacy.

Conclusion: A Trap of Its Own Making

What Pakistan’s elite perceived as a diplomatic win has quickly unravelled into a fiscal and political death trap. The $1 billion disbursement, far from being a lifeline, is a loaded rope handed over with clinical precision.

India, under the technocratic and firm leadership of Parameswaran Iyer at the IMF, has not just registered diplomatic dissent, but has reshaped the conditional architecture of IMF support. Islamabad may still have access to funds, but they come at a cost that challenges the very assumptions of its economic sovereignty and political stability.

Pakistan is not just under IMF surveillance—it is now under international economic probation. And should the region slip into conflict again, it won’t just be fighter jets or tanks that dominate headlines, but frozen bank accounts and shuttered reform plans.