Govt Agrees to IMF Plan to Raise Electricity Prices

Islamabad, June 7, 2025: Pakistan and the International Monetary Fund (IMF) have reached an understanding that electricity prices will be revised upward from July 2025 if subsidies for the power sector surpass Rs. 1.036 trillion during the fiscal year 2025–26.

This includes Rs. 182 billion through the Petroleum Development Levy to fund the Prime Minister’s relief initiative. The objective is to ensure no further growth of circular debt within this limit.

Should additional funds be required beyond the subsidy ceiling, adjustments in electricity tariffs will be implemented while maintaining a progressive rate structure to protect vulnerable consumers. The IMF has placed a strict cap on overall power sector subsidies, restricting them to 0.8% of the GDP and directly linking them to benchmarks on clearing circular debt and minimizing losses.

In its latest revision, the Finance Division has increased the subsidy allocation for FY2025–26 to Rs. 636.1 billion, up from Rs. 400 billion. With rising costs related to protected user segments and the burden of circular debt, total subsidies for the current fiscal year are likely to exceed Rs. 1.2 trillion.

One of the main pressures comes from a growing number of households reducing their electricity usage below 200 units, qualifying as “protected” often through partial reliance on solar systems for lower electricity prices. Meanwhile, a slowdown in industrial and commercial consumption has weakened cross-subsidy contributions.

While tariff restructuring and base revisions are on the table, political resistance and opposition from business sectors continue to limit flexibility. In response, the Finance Division has ordered strict compliance to fiscal rules while drafting cost projections for FY2025–26.