Electricity Subsidy Pakistan: IMF Raises Objection Over Government Plan for Nearly Rs1 Trillion Power Subsidy

Electricity subsidy Pakistan has become a key issue after the International Monetary Fund raised objections to a new proposal. The government plans to allocate nearly Rs1 trillion in subsidies for the power sector in the next fiscal year.

According to official sources, the proposal was shared with the IMF during ongoing economic discussions. The plan is for the fiscal year starting July 2026.

Officials from the Power Division told the IMF that about Rs990 billion may be needed under the electricity subsidy Pakistan program. This amount is about 11 percent higher than the current year’s allocation.

Subsidy higher than current fiscal year

In the current fiscal year, electricity subsidies are estimated at around Rs893 billion. The IMF has reportedly asked Pakistan to keep the subsidy lower than this amount.

More than Rs400 billion from the proposed subsidy would cover losses caused by electricity theft and inefficiencies in the power distribution system.

These financial losses continue to put pressure on the national budget and raise concerns about the performance of the power sector.

Cross subsidy system in power tariffs

The additional Rs100 billion in subsidy is close to the amount collected through cross subsidies. Under this system, consumers using more electricity pay extra charges.

This allows the government to provide relief to households that use less than 300 electricity units per month.

In such cases, other consumers may pay between Rs7 and Rs12 extra per unit to support low-usage households.

Reasons for higher subsidy demand

Officials explained that the electricity subsidy Pakistan plan is increasing due to several factors. These include higher interest payments on circular debt and the issue of K-Electric liabilities.

The Power Division also informed the IMF that China has declined to renegotiate energy agreements. This has limited the government’s options to reduce costs in the power sector.

A spokesperson for the Power Division declined to comment on the discussions. Officials said the matter is still under review and the Finance Ministry will respond to the IMF.

Circular debt still a major challenge

The IMF allows some increase in circular debt under the current program but within a specific limit.

According to estimates presented to the IMF, circular debt may increase by more than Rs500 billion next year. However, the IMF wants this increase limited to between Rs300 billion and Rs325 billion.

Energy Minister Sardar Awais Leghari previously said that losses from electricity theft and poor recovery are not included in tariffs. Instead, the Finance Ministry covers them through subsidies.

Taxpayers ultimately bear the cost

These subsidies are ultimately paid by taxpayers. Last year, salaried individuals alone paid around Rs606 billion in income tax.

The energy minister also admitted that electricity theft and low recoveries caused losses of about Rs497 billion during the previous fiscal year.

Security situation affecting recovery

Officials told the IMF that losses remain high in some regions due to security challenges.

Particularly in Khyber Pakhtunkhwa and Balochistan, law and order conditions make recovery of electricity bills difficult.

However, IMF officials reportedly questioned the high losses in Sindh. Power authorities were unable to provide a satisfactory explanation.

Changes in solar power policy

The government also informed the IMF about changes in solar energy policy.

Instead of net metering, a new net billing system is being introduced. Under this plan, electricity from the national grid could be sold for about Rs60 per unit.

At the same time, solar electricity from consumers may be purchased at less than Rs9 per unit.

Government borrowing to manage circular debt

To manage the rising circular debt, the government has already taken a new loan of Rs1.23 trillion from commercial banks.

Officials have also admitted that bringing circular debt down to zero before 2031 may not be possible.