IMF pushes Pakistan to cut power subsidy

The International Monetary Fund has urged Pakistan to significantly reduce its power sector subsidy in the upcoming fiscal year, as part of ongoing discussions over budget targets and economic reforms.

According to sources, the IMF has proposed that electricity subsidies be capped at Rs830 billion, requiring a reduction of approximately Rs206 billion from the current fiscal year’s allocation. The subsidy for the ongoing year stands at around Rs1,036 billion, reflecting the heavy financial burden of the energy sector on the national budget.

The lender has also called for a long-term strategy to eliminate circular debt in the power sector by 2031. As part of this plan, the flow of circular debt is expected to be brought down to zero by the fiscal year 2026-27, indicating stricter financial discipline and structural changes.

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Sources said Pakistan has assured the IMF of its commitment to reforms aimed at improving efficiency and sustainability in the energy sector. These measures include a gradual reduction in subsidies and periodic adjustments in electricity and gas tariffs.

In addition, the reform agenda includes steps toward privatisation. Power distribution companies are expected to be either privatised or transferred to private management by early 2027, in an effort to enhance performance and reduce losses.

Officials noted that while these measures are intended to stabilise the economy and address long-standing structural issues, they are likely to increase the financial burden on consumers through higher utility costs.

The negotiations between Pakistan and the IMF are ongoing, with both sides working to finalise key targets for the next budget. The outcome is expected to play a crucial role in shaping the country’s economic direction and fiscal policy in the coming years.