IMF urges Pakistan to avoid hitting middle, lower income households with electricity tariff changes

The International Monetary Fund (IMF) is convening discussions with Pakistan authorities to review proposed electricity tariff revisions, a move that could impact millions of consumers. In its statement to Reuters, the IMF noted the burden should not disproportionately fall on middle- or lower-income households. These discussions aim to evaluate whether the revised tariffs align with the country’s commitments under the $7 billion Extended Fund Facility (EFF) and assess their potential macroeconomic impacts, including inflation.

Pakistan has announced plans for a tariff overhaul as part of its ongoing EFF, which includes meeting conditions set by the IMF. Analysts predict this move will not only mitigate rising inflation but also alleviate pressure on industries. However, Pakistan’s power sector remains heavily burdened by circular debt—a web of unpaid bills and subsidies that stretches from generation companies to distributors and the government—prompting frequent tariff increases under IMF-supported reforms since 2023.

Circular debt in Pakistan’s power sector has been brought under control within programme targets, aided by improved recovery rates and reduced loss prevention. Despite an overall reduction in inflation compared to the near-40% peak seen last year, the economy continues to grapple with persistent inflationary pressures that are both a political and economic concern.

As these discussions unfold, Pakistan’s reliance on electricity for consumer price indices underscores the sensitivity of tariff adjustments at this juncture. The IMF’s involvement reflects its commitment to supporting the nation in addressing deeply entrenched economic challenges within a medium-term context.