IMF Budget Talks Focus on Pakistan Energy Sector Reforms and Circular Debt

ISLAMABAD: Energy sector reforms, circular debt reduction and fiscal discipline targets were key topics in the ongoing budget talks between Pakistan and the IMF. The government has assured the international financial institution that the process of energy sector reforms will be further accelerated, and timely adjustments in electricity and gas prices will continue.

According to sources, officials briefed the IMF delegation and said that electricity and gas tariffs will be increased for all consumers except protected consumers so that full cost recovery can be achieved in the energy sector.

It was stated in the briefing that the quarterly tariff adjustment and monthly fuel charges adjustment system of NEPRA will continue. The government expressed its determination that the full burden of fluctuations in energy prices in the global market will be transferred to the consumers.

Officials said that targeted subsidies for the low-income group will continue to be provided so that poor consumers can be protected from possible inflation. According to sources, the government is implementing various measures to reduce the fiscal deficit in the power sector.

The IMF was told that the government is trying to complete the settlements related to arrears and penalties with the IPPs by June 2026. Along with this, work is also underway to establish a competitive power market to increase private sector participation and transparency.

According to the briefing, the government has prepared audited complete data of the circular debt of the gas sector. Officials assured that the circular debt of the gas sector will also be published on a quarterly basis to ensure transparency.

According to sources, the target has been set to limit the electricity subsidy to Rs 830 billion for the fiscal year 2027. The government says that this subsidy will be used only for essential sectors, including DISCOs, K-Electric, agricultural tube wells and circular debt payments.

Officials also told the IMF that efforts will be made to limit the increase in circular debt to Rs 300 billion in fiscal year 2027, while the power sector’s circular debt is planned to be completely eliminated by 2031.

According to economists, if energy reforms are implemented effectively, Pakistan’s fiscal deficit can be reduced. However, the increase in electricity and gas prices is likely to increase additional pressure on the public and industries.