IMF demands to end electricity subsidies in Pakistan, sets tough conditions

ISLAMABAD: The International Monetary Fund (IMF) has set tough conditions for Pakistan, specifically targeting energy subsidies and provincial budgets, in response to Punjab’s decision to offer a two-month electricity subsidy worth Rs45-90 billion.

The IMF has labeled this move as “fiscally irresponsible” and demanded its withdrawal by September 30.

Additionally, the IMF has prohibited provincial governments from introducing new subsidies during the 37-month Extended Fund Facility program, effectively shelving Punjab’s planned Rs700 billion solar panel distribution scheme for low-energy consumers.

This contradicts earlier claims that provinces could implement electricity subsidies, casting doubt on Prime Minister Shehbaz Sharif’s call for other provinces to follow Punjab’s lead.

The current high electricity prices, driven by poor governance, high transmission losses, and costly deals, have made electricity unaffordable for most households.

In addition, the IMF has also imposed a condition requiring provincial governments to avoid any policies or actions that could compromise commitments made under the $7 billion program, limiting their fiscal autonomy.

Provinces had earlier agreed to sign a National Fiscal Pact by September, taking on certain federal expenses, and improving their agricultural income tax, property tax, and sales tax on services. However, the new condition prevents them from taking solo actions in these areas.

Another critical condition requires provinces to consult the Finance Ministry before implementing measures that could impact or undermine structural benchmarks and key actions agreed upon with the IMF.

This unprecedented oversight highlights the IMF’s focus on provincial policies and budgets in the new program, covering five budgets and policies of five governments.

The Finance Ministry is currently working to secure a date for the IMF Executive Board meeting to approve the $7 billion loan, making this week crucial for obtaining necessary approvals for new loans and rollovers.