The International Monetary Fund (IMF) has pressed Pakistan to reduce its power subsidy to Rs 830 billion in the upcoming fiscal year. As negotiations between Pakistan and the IMF continue to finalize key budget targets, the lender has insisted on a Rs 206 billion reduction in the electricity subsidy compared to the current fiscal year.
Currently, the subsidy allocated to the energy sector stands at Rs 1,036 billion. The IMF has emphasized that this figure must be lowered to no more than Rs 830 billion in the next budget cycle. Furthermore, the fund has set a goal to completely eliminate the circular debt burden within the power sector by the year 2031.
In a significant development, the IMF has called for a gradual annual reduction of subsidies in the energy sector. For the fiscal year 2026-2027, the circular debt accumulation is expected to be zero, reflecting the lender’s demand for fiscal discipline and sectoral reforms.
Pakistan has assured the IMF of ongoing improvements in the energy sector alongside the implementation of a comprehensive reforms package. This package includes continuous increases in power and gas tariffs, aimed at reducing subsidies over time.
Documents related to the agreement suggest substantial privatization measures within the power sector, including the transfer of power distribution companies to private ownership. This transition is anticipated to take place by early 2027.
Notably, these reforms are likely to result in higher costs for consumers, as electricity and gas tariffs are expected to rise in line with subsidy reductions.
