IMF Agrees in Principle to Tariff Reduction
Pakistan and the International Monetary Fund (IMF) have resumed policy-level discussions, with Islamabad seeking relief on electricity tariffs as part of efforts to unlock the next $1 billion tranche under the $7 billion loan program.
According to sources from the Ministry of Energy, the IMF has conditionally agreed to reduce the basic electricity tariff by Rs 1.5 to Rs 2 per unit. However, the final approval hinges on Pakistan submitting a detailed privatization plan for its state-owned electricity distribution companies (DISCOs). A decision on the tariff reduction is expected next month.
IMF’s Concerns Over Power Sector Losses
During negotiations, the IMF delegation expressed dissatisfaction with the performance of DISCOs, identifying them as a major obstacle to power sector reforms. The Fund highlighted mounting financial losses and urged the government to accelerate privatization efforts to minimize revenue leakages.
To address these concerns, Pakistan has proposed a two-phase privatization plan:
- Phase 1: Privatization of Islamabad, Faisalabad, and Gujranwala Electric Supply Companies.
- Phase 2: Privatization of Multan, Lahore, and Hyderabad Electric Supply Companies.
The IMF is pushing for a concrete timeline for these privatizations, making it a key requirement for tariff reduction. The government hopes that by moving forward with privatization, it can improve power sector efficiency while securing relief for consumers.
Energy Reforms and Loan Negotiations
Alongside tariff discussions, Pakistan’s economic team, led by the Ministry of Finance, is negotiating broader energy and taxation sector reforms. The IMF had earlier proposed additional fiscal measures, including:
- Electricity surcharge: A proposed surcharge of Rs 2.80 per unit on electricity bills.
- Carbon tax: Imposing a carbon tax on petrol and diesel.
- Petroleum levy: Increasing the petroleum levy from Rs 60 to Rs 70 per liter.
Despite Pakistan’s attempts to reduce the financial burden on consumers, the IMF previously rejected a proposal to abolish GST on electricity bills.
Additionally, to manage the power sector’s circular debt, Pakistan has already secured a Rs 1,250 billion loan from commercial banks at an interest rate of 10.8%. This financial arrangement is part of broader economic stabilization efforts under the IMF program.
