The IMF has approved Pakistan’s allocation of Rs. 830 billion for power subsidies in the fiscal year 2026-27. This approval comes with a new condition requiring electricity tariff increases in January 2027.
According to government sources, Rs. 300 billion of the total subsidy will cover losses caused by electricity theft, poor bill recovery, and sector inefficiencies. The remaining funds will support tariff differential claims, FATA arrears, agricultural tube wells, and circular debt repayments.
The IMF has instructed Pakistan to ensure that the January 2027 tariff rebasing fully accounts for higher generation costs. These costs have risen due to recent global energy market volatility and the ongoing Middle East conflict. Pakistan has accepted this requirement as a structural benchmark under the $7 billion bailout program.
In addition, the IMF has allowed an extra Rs. 300 billion circular debt flow for FY2027. This comes after a projected Rs. 400 billion increase in the current fiscal year. Both Pakistan and the IMF are targeting the resolution of circular debt by 2031.
The government has also assured the IMF that arrangements with Independent Power Producers (IPPs) will be finalized by the end of June 2026. These agreements are intended to improve efficiency and stabilize the energy sector.
Analysts say the IMF’s approval provides temporary fiscal relief but highlights the need for long-term energy sector reforms. They note that subsidies alone cannot solve systemic issues, and effective management of power losses is essential.
The planned tariff adjustment in January 2027 may increase electricity bills for consumers. However, the government aims to balance this impact through targeted subsidies and improved billing systems.
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The IMF’s involvement underscores Pakistan’s reliance on international support to manage energy and fiscal challenges. The coming months will test both the government’s reform plans and the efficiency of subsidy implementation.
