IMF has not imposed any new conditions, says Khurram Schehzad

May 20, 2025 (MLN): To help inform ongoing media coverage and public discussion around Pakistan’s economic reform program, Khurram Schehzad, Advisor to the Finance Minister, shared that there are no new “conditions” recently imposed by the International Monetary Fund (IMF).

“There are no newly introduced conditions,” Schehzad said. “They represent the natural progression of reforms already agreed upon when Pakistan signed the MEFP in September 2024. Each step builds logically on the foundations laid in earlier phases of the program.”

Emphasizing the phased nature of the Extended Fund Facility (EFF), he explained that each structural benchmark (SB) builds on progress achieved in earlier reviews, as per the press release issued.

On May 9, 2025, the IMF Executive Board approved the first review under the 37-month, $7 billion EFF and the request for a 28-month, $1.4bn Resilience and Sustainability Facility (RSF).

“The IMF recognized our strong program implementation, which has contributed to improved financing conditions, greater external stability, and a continuing economic recovery,” he added.

Schehzad stated that each review under the EFF introduces deliberate next steps.

“These benchmarks are not surprises—they are deliberate follow-ons to earlier milestones,” he said.

As an example, he cited the parliamentary approval of the FY26 budget in line with the IMF staff agreement, calling it the second step toward achieving a primary surplus of 2% of GDP by FY27.

The FY25 budget had targeted a 1% surplus as the first step.

He also pointed to several SBs that reflect continuation: implementing new AIT laws after aligning provincial regimes with federal tax rules; publishing a governance action plan following the Governance and Corruption Diagnostic Assessment; and making the Captive Power Levy ordinance permanent after introducing the Captive Power Transition Levy.

Indexation of Kafaalat cash transfers, implemented in January 2025, will continue into 2026. Electricity and gas tariff notifications remain ongoing measures to support cost recovery and prevent circular debt.

Addressing recently introduced benchmarks, Schehzad explained that they are responses to new developments.

These include publishing a post-2027 financial sector strategy and removing the cap on the debt service surcharge, aligned with a constitutional amendment and evolving energy sector reforms.

Other reforms involve phasing out incentives in Special Technology Zones and industrial parks by 2035 to ensure a level playing field and lifting restrictions on used car imports to align with the trade liberalization goals set out in the September 2024 MEFP.

“These measures reflect Pakistan’s steady and sovereign commitment to economic reform and transparency—not externally imposed demands,” Schehzad asserted.

Regarding the RSF, he confirmed that the remaining 13 actions fall under this separate climate-resilience-focused facility, also approved by the IMF.

On recent discussions about defense spending, Schehzad noted that the Rs2.414 trillion defense budget cited in the IMF staff report is an absolute projection.

“However, if one refers to Table 4b, it is clear that defense expenditure remains constant at 1.9% of GDP from FY25 onward. There has been no significant change in the proportion of GDP allocated,” he clarified.

Commenting on IMF documentation mentioning India-Pakistan tensions, Schehzad offered a balanced view: “Yes, the IMF report identifies regional tensions as a potential risk, as is customary in such assessments”.

“But it also notes that market response has been modest—Pakistan’s stock market has retained most of its recent gains, and financial spreads have only widened moderately”, he added.

“We view this as a reflection of investor confidence in Pakistan’s macroeconomic path. Constructive diplomatic and economic engagement in the region, including with neighbors, remains essential”, he further noted.

“We continue to pursue stability and responsible governance that supports long-term growth for the country and region alike,” he concluded.

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