IMF slashes Pakistan’s power subsidies
SETS STRICT CIRCULAR DEBT TARGET AT RS400B
By Commerce Reporter
KARACHI: The International Monetary Fund (IMF) has reduced Pakistan’s power sector subsidies by Rs143 billion, setting a strict target to limit the flow of circular debt to Rs400 billion for the current fiscal year. This revised target, part of Pakistan’s ongoing IMF-backed economic reforms, aims to curtail reliance on taxpayers’ funds while tackling systemic inefficiencies in the energy sector.
The IMF’s latest staff report reveals that, instead of the Rs1.04 trillion initially budgeted, power subsidies will be capped at Rs893 billion roughly 0.7% of Pakistan’s GDP. This reduction in subsidies is tied to the goal of containing circular debt, which has long plagued the country’s power sector.
Despite the IMF’s target to restrict circular debt flow to Rs400 billion, the Economic Coordination Committee (ECC) of the Cabinet has approved a higher flow target of Rs522 billion for the fiscal year. This approval came a day after the IMF’s board meeting, which sanctioned the revised targets along with a $1.2 billion loan tranche for Pakistan.
The ECC’s approval of the Rs522 billion target contradicts the IMF’s target, which assumes strong fiscal performance in FY25 and improvements in recoveries and technical losses. While the IMF expects circular debt pressures to ease somewhat due to strong industrial demand and planned incremental pricing for industrial and agricultural users, the government’s higher target includes adjustments for non-recoveries, line losses, and other inefficiencies.
Circular debt in Pakistan’s power sector has long been a major challenge, caused by non-recoveries from various consumers, high transmission and distribution losses, and delayed tariff adjustments. The IMF’s report stresses the need for structural reforms to address these inefficiencies, including private sector participation in power distribution companies (DISCOs) and generation companies (GENCOs), along with cost-reducing measures and wholesale market reforms.
The IMF’s stance remains firm: the target for circular debt flow must stay at Rs400 billion, with the government using the budget to cover systemic inefficiencies. However, despite the Power Division’s clarification that Rs122 billion of the Rs522 billion will be used for principal repayment under the circular debt refinancing scheme, the IMF does not recognize this higher figure in its report.
