Islamabad, Feb 14 (.) The International Monetary Fund (IMF) is engaged in discussions with Pakistani authorities over proposed revisions to its electricity tariffs, as Islamabad seeks to align its pricing structure with the commitments it had made under its $7bn Extended Fund Facility (EFF).
The long-term programme by the global money lender is aimed at addressing the country’s many structural and economic weaknesses, as well as the chronic balance-of-payments pressures it is under, while restoring macroeconomic stability.
With the money lender’s next programme review approaching, the government has put forward a comprehensive restructuring of electricity pricing.
The proposed changes are geared towards the rationalisation of tariffs, reduction of fiscal pressures, and to place the Pakistani power sector on a more sustainable financial footing, in accordance with reform conditions backed by the IMF.
The IMF has further indicated that it is assessing whether the proposed tariff adjustments are consistent with Pakistan’s EFF commitments and evaluating their broader macroeconomic implications, particularly their potential impact on inflation.
A central concern for the Fund is that any pricing revision must avoid disproportionately burdening lower- and middle-income households.
Protecting vulnerable groups remains a core requirement, especially given Pakistan’s fragile economic recovery and the lingering effects of recent inflationary shocks.
Long been plagued by the problem of circular debt, Pakistan’s energy sector is facing a crippling systemic build-up of unpaid bills, subsidies and operational inefficiencies involving power producers, distribution companies, and the federal government.
Amid an already struggling economy, the accumulation of circular debt has strained the country’s public finances and increasingly discouraged private investment in what is seen as a failing energy sector.
Since 2023, successive tariff increases have been introduced as part of IMF-supported reforms aimed at stabilising the sector’s finances.
As per officials in Islamabad and in the IMF, some of the administration’s recent measures have helped contain the excessive growth of circular debt within programme targets, supported by improved bill recoveries and efforts to reduce transmission and distribution losses.
However, electricity prices carry significant weight in Pakistan’s Consumer Price Index (CPI), making any further adjustment politically sensitive.
Although inflation has eased considerably from its near 40% peak in 2023, it remains a pressing concern for households and policymakers.
Any upward adjustment in electricity tariffs could exert renewed pressure on consumer prices, particularly as energy costs ripple through transport, manufacturing and food supply chains.
The government’s proposed overhaul seeks to gradually dismantle the longstanding cross-subsidy framework under which industrial consumers have effectively subsidised residential users.
Islamabad’s attempts at energy tariff rationalisation remains one of the most politically challenging yet economically critical components of the reform agenda, given its direct link to fiscal sustainability and investor confidence.
Talks between Islamabad and the IMF are expected to continue in the lead-up to the EFF review scheduled for late March.
. . PRS