IMF approves Rs 830b electricity subsidy for Pakistan, but price hike looms

The International Monetary Fund (IMF) has approved Pakistan’s plan to provide a subsidy of Rs 830 billion for the electricity sector in the upcoming fiscal year 2026-27, but has imposed a condition that electricity prices will rise in January 2027.

According to sources, around Rs 300 billion of the subsidy has been earmarked to cover losses caused by electricity theft and under-collection of bills. The IMF has noted that electricity tariffs will undergo the annual adjustment next year, factoring in global energy market tensions, particularly in the Middle East.

The government has assured the IMF that cost recovery will be achieved through timely revisions of electricity rates, with the financial burden distributed fairly among different consumer groups. However, sources indicate that the approved Rs 830 billion falls roughly 16 per cent short of the government’s original demand. The subsidy package includes adjustments for tariff differences, former FATA dues, agricultural tube well expenses, and circular debt repayment.

While the government has reiterated its commitment to power sector reforms aimed at improving financial sustainability, experts note that the sector has historically struggled to reduce circular debt despite price increases, raising concerns about the effectiveness of the proposed measures.

In contrast, the IMF has not permitted subsidies for petrol and diesel, even as global fuel prices continue to climb, a decision that analysts have described as contradictory.

The government has also committed to resolving outstanding dues with independent power producers by June 2026 and to settling its dispute with K-Electric by December 2026.