IMF Sets $143 Billion Cut in Pakistan’s Electricity Subsidy

ISLAMABAD: The International Monetary Fund (IMF) has set strict targets for Pakistan, including a reduction of Rs 143 billion in electricity subsidies and limiting circulatory debt flow to Rs 400 billion for the current fiscal year. The move aims to control persistent financial mismanagement in the power sector and emphasizes improved efficiency over reliance on taxpayer money.

According to the IMF staff report, electricity subsidies have been reduced to Rs 893 billion, or 0.7 percent of the national GDP, down from Rs 1.04 trillion originally allocated in the budget. The $1.2 billion tranche for Pakistan was approved by the IMF board just a day before the Economic Coordination Committee (ECC) of the federal cabinet approved a higher circulatory debt target of Rs 522 billion for the fiscal year.

The IMF explained that the Rs 400 billion target is based on improved fiscal performance, better bill collection, and reduced technical losses. Monitoring will be done through quarterly tariff adjustments and monthly fuel cost adjustments. Factors expected to reduce circulatory debt include industrial demand, levies on captive power plants, incremental pricing for agricultural and industrial users, and lower interest costs.

Meanwhile, the ECC’s new circular debt management plan allows for Rs 522 billion in circulatory debt, to be covered through government financial support. Power Division officials clarified that Rs 400 billion will be adjusted through the budget, while Rs 122 billion will be serviced under a refinancing scheme without increasing total circulatory debt.

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The IMF emphasized that attention should now focus on improving bill collection, reducing line losses, encouraging private sector participation, strengthening the wholesale electricity market, and resolving RLNG surplus and circulatory debt issues in the gas sector.

The higher Rs 522 billion circulatory debt target reflects losses from line losses, non-recoveries from various regions including Azad Kashmir, former FATA, provincial and federal institutions, private consumers, and Balochistan tube wells, as well as interest on old loans, delayed subsidy payments, tariff delays, and KE non-payments.

Currently, consumers are paying Rs 3.23 per unit toward circulatory debt, and the IMF has been assured that annual tariff rebasing will shift from July to January 2026 to gradually ease the burden on consumers.