THE IMF’s Executive Board has approved the third review of Pakistan’s 37-month Extended Fund Facility (EFF), adding 11 new conditions and raising total structural conditionality to 75. In addition, there are 30 standing commitments, bringing total compliance requirements to 105. These span fiscal, governance, monetary, foreign exchange, financial, energy, state-owned enterprises, trade, investment, deregulation, social protection, and anti-corruption measures — many extending well beyond the IMF’s core mandate and institutional competence. The sheer breadth of this conditionality now touches almost every sphere of economic activity and governance, steadily eroding Pakistan’s policy autonomy and economic sovereignty.
Parliament is required to approve the FY27 budget in line with the IMF’s stringent and intrusive policy advice and targets, effectively reducing the legislature to a rubber stamp. Pakistan is to phase out fiscal incentives for Special Economic and Technology Zones, publish an action plan to mitigate corruption vulnerabilities in government departments, amend the NAB ordinance to enhance the appointment process for NAB chairman, publish asset declarations of civil servants, amend the Companies Act to improve corporate governance structures, adopt a national policy for sugar market liberalisation, and lift restrictions on commercial import of used cars.
Equally worrisome is the IMF’s approach to energy taxation amid persistently high inflation. Governments facing high energy costs ordinarily reduce or suspend fuel taxes to shield citizens from cost-of-living pressures. In Pakistan, the opposite has occurred: petrol prices are now carrying roughly Rs145 per litre in taxes and levies — nearly one-third of what consumers pay at the pump. These levies have intensified inflation, raised transport and production costs, and deepened the burden on already-stretched households. The consequent pressure on the State Bank to raise interest rates further suppresses economic activity while ignoring the structural roots of inflation. Meanwhile, the IMF’s insistence on full cost recovery through electricity and gas tariff adjustments has failed to resolve the circular debt problem — a crisis rooted in inefficiency, theft, transmission losses, and the ruinous terms of IPP contracts.
The effectiveness and legitimacy of IMF conditionality therefore deserve careful scrutiny.
The effectiveness and legitimacy of IMF conditionality deserve careful scrutiny.
The Fund was not designed to micromanage economies. The IMF’s own doctrine of parsimony holds that conditions should be few, focused, and directly tied to a country’s balance-of-payments needs, strictly limited to what is necessary to restore macroeconomic stability. Its 2018 Review of Programme Design and Conditionality and the 2024 Operational Guidance Notecontinue to stress the need for focused, tailored and parsimonious conditionality.
Following the 2008 global financial crisis, the IMF itself acknowledged the need for streamlined conditionality focused on its core areas of expertise. Its 2011 review revealed a marked reduction in structural conditionality across 45 post-crisis arrangements, which averaged around 10 conditions per programme per year between 2008 and 2010, compared to 17-19 during the 1995-2007 period. Pakistan’s current EFF, with 75 conditions in just 1.5 years represents a striking reversal of that parsimony principle. The IMF’s own Independent Evaluation Office (IEO), in its 2021 report, also found excessive structural conditionalities in Pakistan’s arrangements, citing the 2013-2016 EFF, which carried 82 conditions, and concluding that the large majority had low depth and weak growth orientation.
The empirical record is damning. A 2022 study by Prof Firat Demir in the Journal of Comparative Economics analysing IMF conditionality across more than 130 countries from 1980 to 2014 found that IMF programmes have delivered disappointing growth and development outcomes, with little or no impact on export sophistication, economic complexity, or diversification. Pakistan’s own record confirms this. Pakistan has consistently underperformed its South Asian neighbours, and its successive programmes have excessively focused on front-loaded adjustment while neglecting the structural foundations of sustained growth: weak exports, inequitable taxation, lavish government expenditure, poor human capital, and failing public services.
Meanwhile, balance-of-payments crises have remained a recurring feature in countries like Pakistan, Egypt, and Argentina, despite completion of repeated IMF programmes.
Part of the problem lies within Pakistan itself. In theory, borrowing countries have the primary responsibility for designing their economic programmes, set out in a letter of intent and a memorandum of economic and financial policies. In practice, these are drafted by IMF staff and presented to country authorities for signature. The proliferation of low-quality, low-depth invasive conditions in the current EFF reflects not only the IMF’s lack of evenhandedness but also the weakness of Pakistan’s negotiating team in blindly accepting IMF advice, effectively outsourcing economic management to the IMF.
The Fund has also drifted far beyond its original mandate as a lender of last resort. It has ventured deep into domestic governance, climate policy, private sector development, and digitisation, on the pretext of these being macro-critical, without the institutional expertise those areas require. Its substantial financial support to Ukraine is equally revealing: a $15.6 billion programme launched in 2023 was followed by a new $8.1bn EFF approved in February 2026, part of a broader $136.5bn international support package. Officially, these programmes target macro-financial stability, corruption, and structural reforms. In reality, IMF support has become a linchpin of Ukraine’s war financing, just as recent IMF lending to Egypt has been framed as stabilising a strategically vital economy in the wake of the Gaza conflict. These programmes illustrate how the Fund has become an instrument of geopolitical stabilisation. The IEO has flagged that such perceptions of unequal treatment are actively undermining the IMF’s credibility.
The IMF’s policy advice must be more pragmatic and country-specific. Fewer, more selective conditions would foster genuine ownership among country authorities and make reforms successful. Programme design must also ensure fair burden-sharing and a systematic assessment of social and distributional consequences of adjustment.
Pakistan, for its part, must end its dependency on borrowed money and external prescription. Other nations have achieved this through strong policy frameworks and sound fundamentals; there is no reason Pakistan cannot do the same. What is required above all is visionary, competent and sincere leadership in public institutions. Without it, Pakistan’s economic management will remain captive to the IMF and self-seeking donors who have consistently failed the nation for decades.
The writer is a former senior adviser of the IMF. He is the author of The Shady Economics of International Aid.
Published in Dawn, May 27th, 2026
