Pakistan’s energy sector is set for major reforms as the International Monetary Fund (IMF) has called for a sharp reduction in subsidies next fiscal year.
The government has also shared detailed plans to control circular debt, adjust tariffs, and privatise electricity distribution.
The IMF has urged Pakistan to reduce energy sector subsidies from Rs 1,186 billion to Rs 830 billion in the upcoming fiscal year. This move is part of broader reforms aimed at improving the financial sustainability of the electricity and gas sectors.
The international lender also emphasized the need for gradual reduction of subsidies over the coming years, with a long-term goal of completely eliminating circular debt in the power sector by 2031.
The government has assured that electricity and gas tariffs will be adjusted timely to reflect the subsidy reductions. Authorities also plan to improve recovery rates in the energy sector and strengthen implementation of the reform package.
Officials highlighted that subsidies will now be limited to agricultural tube wells and wahabats in tribal areas, targeting relief to the most vulnerable while easing the fiscal burden.
Tackling circular debt
Controlling circular debt remains a top priority. The government has pledged to bring circular debt flow to zero in the next fiscal year. Measures include improving billing and collection systems, reducing electricity theft, and curbing line losses across the national grid.
The IMF also stressed the importance of tackling energy theft and operational inefficiencies, which continue to strain the power sector’s finances.
Privatization of distribution companies
Another key reform involves the privatization or private management of electricity distribution companies, expected to begin by early 2027. This step aims to enhance efficiency, improve service delivery, and reduce government expenditure in the energy sector.
The government sees this as a crucial step to modernize the power sector while gradually moving away from heavy subsidies.
