Even as the International Monetary Fund (IMF) gave its nod to release the next tranche of its bailout to Pakistan, the lender imposed more conditions on Islamabad, along with cutting its GDP growth projections.
The IMF slashed Pakistan’s FY2025 growth outlook to 2.6 per cent as the first half of the year saw weaker economic activity paired with global uncertainties triggered by the Trump tariffs.
“The overall risk of sovereign stress is high, reflecting a high level of vulnerability from elevated debt and gross financing needs and low reserve buffers,” determined the IMF in its latest report.
Islamabad faces a mountain of a task to mitigate such risks, including securing “financial commitments by bilateral partners” and the “ability of [Pakistan’s] banking system to rollover existing domestic debt.” Simply put, it needs the IMF bailout and handouts from its allies to service its financial requirements.
A staff note even reads, “timely disbursements of committed bilateral and multilateral support are critical in the period ahead” for Pakistan to mitigate the gross financing needs (GFNs), which the IMF noted as ‘high risk’.
According to the IMF, policy discussions were held in Islamabad and Karachi between February 24 and March 14, 2025, roughly a month before Pakistan-based terrorists carried out the deadly attack on tourists at Pahalgam in India’s Jammu and Kashmir. “The rising tensions between India and Pakistan, if sustained or deteriorate further, could heighten enterprise risks to the fiscal, external and reform goals of the programme,” stressed the IMF.
The tariffs triggered by US President Donald Trump are not going to help matters. “While there is considerable uncertainty about the final impact on the economy, the tariffs and subsequent financial market reaction are expected to weigh on Pakistan’s exports and GDP, with growth revised down marginally in FY 2025 (as less than a quarter is left in the year) and around 0.3ppts in FY 2026,” noted the international lender in its latest report.
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Pakistan’s banks, much like most of its GDP, service their government, which spends a significant portion of it to bankroll the military. “The banking system remains oriented toward providing credit to the government…,” stated the IMF, “…leaving Pakistan behind its peers in terms of private credit relative to the size of its economy.”
Not one or two, but 11 new conditions were slapped on the struggling economy that is fertile ground and home to international terrorist outfits such as Lashkar-e-Tayyiba (LeT).
These include parliamentary approval of a new ₹17.6 trillion budget, and raising the debt servicing surcharge on electricity bills, along with taking out the import restrictions placed on used cars older than three years.
Moreover, new Agriculture Income Tax laws need to be implemented to ensure better returns and compliance. These need to be done by June 2025.
Pakistan would also have to publish a governance action plan in line with the recommendations of IMF’s Governance Diagnostic Assessment.
Other conditions include electricity tariff rebasing, removing the cap on the debt service surcharge, changes to how industries access power from the national electricity grid, a semi-annual gas tariff adjustment, and Pakistan looking at the possibility of phasing out incentives to Special Technology Zones and other industrial parks or zones by 2035.
Most of the conditions were related to power, with the IMF noting that erroneous energy policies were adding to the “circular debt”, and exaggerating the shoddy governance of Pakistan.
The IMF, at the fag end of its report, also noted that Pakistan is one of the worst polluters in the world. “Pakistan is highly exposed to climate change and is one of the world’s largest carbon emitters. The impact of climate change has been strongly felt this century and is expected to worsen over the coming decades as risks escalate,” added the lender.
