Pakistan’s Electricity Tariffs Under Scrutiny: IMF Discussions and the Road Ahead
The International Monetary Fund (IMF) is currently engaged in discussions with Pakistani authorities regarding proposed revisions to electricity tariffs. A key stipulation from the IMF is that any tariff adjustments should not disproportionately burden lower- and middle-income households. This comes as Pakistan seeks to meet the conditions of its $7 billion Extended Fund Facility (EFF) program, with another review looming.
The Weight of Electricity Costs in Pakistan
Electricity tariffs hold significant weight in Pakistan’s Consumer Price Index (CPI). Adjustments to these tariffs are therefore highly sensitive, particularly as the nation continues to grapple with inflation, despite a decline from its peak of nearly 40% in 2023. The IMF recognizes this sensitivity and is evaluating the potential macroeconomic impact of the proposed changes.
Addressing Pakistan’s Circular Debt
Pakistan’s power sector has been historically burdened by “circular debt” – a complex web of unpaid bills and subsidies accumulating across power generation companies, distribution networks, and the government. This has necessitated repeated tariff increases as part of IMF-backed reforms since 2023. The IMF reports that the accumulation of this circular debt has been contained within program targets, aided by improvements in revenue collection and loss reduction.
The EFF and Pakistan’s Economic Outlook
The $7 billion EFF is a longer-term loan program designed to address fundamental economic weaknesses and balance-of-payments issues. Recent reports suggest Pakistan’s central bank governor anticipates a broader economic recovery than initially forecast by the IMF. However, tariff revisions remain a critical component of maintaining financial stability and meeting IMF requirements.
Inflationary Pressures and Industrial Impact
Analysts predict the proposed tariff overhaul will likely contribute to inflationary pressures. However, it is also expected to alleviate some of the financial strain on Pakistan’s industrial sector. Balancing these competing effects is a key challenge for policymakers.
Did you recognize? The IMF approved a $1.2 billion payout to Pakistan in December 2025 following a successful review of the EFF program.
Recent IMF Funding and Program Milestones
The IMF has provided substantial financial support to Pakistan in recent years. In May 2025, the IMF executive board approved a $1.4 billion loan under its climate finance program. Prior to that, in October 2025, a staff-level agreement was reached for a $1.2 billion payout. These disbursements are contingent upon continued adherence to the EFF program’s conditions.
FAQ
Q: What is the Extended Fund Facility (EFF)?
A: It’s a longer-term IMF loan program designed to help countries address deep-seated economic weaknesses.
Q: What is “circular debt”?
A: It’s a chain of unpaid bills and subsidies within Pakistan’s power sector.
Q: Why is the IMF concerned about electricity tariffs?
A: Electricity costs significantly impact Pakistan’s inflation rate and macroeconomic stability.
Q: Will lower-income households be affected by tariff revisions?
A: The IMF has stated that the burden of revisions should not fall on middle- or lower-income households.
Pro Tip: Staying informed about IMF programs and their conditions is crucial for understanding Pakistan’s economic trajectory.
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