Pakistan Plans Major Energy Reforms Under IMF Program Ahead of Budget

The government of Pakistan has decided to introduce large-scale reforms in the energy sector under the IMF programme, including an increase in electricity and gas tariffs, a reduction in circular debt and privatisation of the power sector. This development came to light in the ongoing negotiations between the IMF and the government ahead of the federal budget 2027.

According to sources, the government, while briefing the IMF, said that tariffs will be increased for all electricity and gas consumers except protected consumers to reduce the fiscal deficit in the energy sector.

It was stated in the briefing that the system of quarterly tariff adjustments and monthly fuel adjustments of NEPRA will continue without any disruption. According to officials, the government is committed to the policy of transferring the full burden of global energy prices to the consumers.

The government clarified that targeted subsidies will continue for the vulnerable and low-income groups. Sources say that a strategy is being adopted to limit subsidies in the energy sector and reach only the deserving classes.

The IMF was told that the government is implementing a comprehensive plan to reduce circular debt in the power sector. The target has been set to limit the increase in circular debt to Rs 300 billion in the fiscal year 2027 and to completely eliminate it by 2031.

Officials said that fully audited data of circular debt in the gas sector has been prepared, and it will be presented to the public on a quarterly basis in the future. In addition, a gas circular debt management plan is also being prepared for the fiscal year 2027.

According to sources, the government assured the IMF that the electricity subsidy will not be allowed to increase beyond Rs 830 billion. This subsidy will be allocated only for essential sectors, including K-Electric, DISCOS, FATA arrears and agricultural tube wells.

The briefing further stated that the target has been set to finalise the agreements related to fines and arrears with IPPs by June 2026. According to officials, these agreements will reduce the financial burden of the power sector.

According to sources, the government has also set a target of completing the privatisation process of IESCO, GEPCO and Faisalabad Electric Supply Company by the beginning of 2027 so that private investment in the power sector can be promoted.

Economic analysts say that these reforms under the IMF programme may improve the performance of the energy sector; however, the public and the business community may also face difficulties due to the increase in electricity and gas prices.