IMF engages Pakistan in talks over electricity tariff revisions

WEB DESK: The International Monetary Fund (IMF) is currently engaged in discussions with Pakistani authorities over proposed revisions to electricity tariffs, according to a statement issued by the Fund and reported by Reuters on February 14. The talks form part of Pakistan’s ongoing efforts to comply with conditions under its $7b Extended Fund Facility (EFF), a longer-term IMF programme designed to address structural economic weaknesses and persistent balance-of-payments challenges. With the next programme review approaching, the government has proposed a comprehensive overhaul of electricity pricing aimed at aligning with IMF-backed reform requirements.

IMF Position and Conditions

In its statement, the IMF indicated that it is evaluating whether the proposed tariff adjustments are consistent with Pakistan’s commitments under the EFF and assessing their potential implications for macroeconomic stability, particularly inflation. A key condition emphasised by the Fund is that the burden of any revisions should not fall on middle- or lower-income households, underscoring the need to protect vulnerable groups amid continuing economic pressures and a still-fragile recovery.

Power Sector and Circular Debt Challenges

Pakistan’s electricity sector has long struggled with circular debt a systemic accumulation of unpaid bills, subsidies and inefficiencies involving power generation companies, distribution firms and the government. Since 2023, successive tariff increases have been implemented as part of IMF-supported reforms to stabilise the sector’s finances. Recent updates suggest that circular debt growth has been contained within programme targets, supported by improved bill recoveries and measures to curb transmission and distribution losses. Nevertheless, electricity prices carry significant weight in Pakistan’s Consumer Price Index (CPI), making any adjustments politically sensitive. Although inflation has declined considerably from its near 40pc peak in 2023, it remains a central concern for households and policymakers.

Proposed Tariff Overhaul and Economic Impact

The government’s proposed revisions seek to restructure electricity pricing by gradually dismantling the cross-subsidy framework under which industrial users have effectively subsidised residential consumption. Analysts suggest that the changes could reduce industrial electricity prices by 13–15pc, offering relief to export-oriented sectors such as textiles and manufacturing that have long cited high energy costs as undermining competitiveness. At the same time, the plan could eliminate approximately Rs102b(around $365m) in subsidies and shift a greater share of costs towards middle-income households. Some residential consumers particularly those using between 100 and 300 units per month may face bill increases of up to 50pc due to revised fixed charges. Economists estimate the adjustments could add roughly 1.1 percentage points to inflation over the next twelve months.

Broader Economic Context

The ongoing discussions reflect Pakistan’s broader effort to stabilise its economy under IMF supervision, including timely energy tariff rationalisation aimed at strengthening the power sector’s financial viability and reducing reliance on fiscal support. Talks are expected to continue ahead of the EFF review scheduled for late March, with further clarity likely to emerge following formal assessments and official announcements.