Pakistan has assured the International Monetary Fund (IMF) that it will raise electricity tariffs while capping power subsidies at Rs830 billion in the upcoming fiscal year, according to details of the ongoing programme.

 

The subsidy allocation, approved by the IMF, includes Rs300 billion to cover losses linked to electricity theft and weak bill recovery. Reports quoted government sources as stating that the total subsidy envelope for 2026-27 is around 16 percent lower than what authorities had proposed.

 

As part of the agreement under the $7 billion Extended Fund Facility (EFF), Pakistan committed to implementing tariff adjustments in line with costs. Officials said that a new base tariff will take effect from January 15, 2027, under a structural benchmark agreed with the lender.

 

The government told the IMF that timely electricity tariff adjustments would be consistent with cost recovery, and that increases would be applied across consumer categories. These include quarterly tariff adjustments (QTAs) and monthly fuel cost revisions notified by the National Electric Power Regulatory Authority (NEPRA).

 

Officials said that the January 2027 rebasing would reflect changes in generation costs linked to global energy market movements, including the impact of the Middle East conflict.

 

The Rs830 billion subsidy will cover tariff differentials for distribution companies and K-Electric, payments related to former Federally Administered Tribal Areas (FATA) areas, support for agricultural tube wells, and allocations linked to circular debt.

 

Despite the subsidy allocation, the IMF did not allow fuel subsidies, even as global price pressures persist. At the same time, according to the reports the programme permits an increase of Rs300 billion in circular debt for the next fiscal year, following a projected Rs400 billion rise in the current year.

 

Pakistan also informed the IMF that it would finalise arrangements with Independent Power Producers (IPPs) by end-June 2026, including efforts to resolve outstanding arrears. A separate dispute involving K-Electric remains under litigation, contributing to delayed payments.

 

On structural reforms, the government said that private sector participation in distribution companies would be pursued to improve recovery and efficiency. However, the privatisation of Islamabad, Gujranwala and Faisalabad distribution companies has been delayed and is now expected by early 2027.