The federal government has devised an alternative strategy to reduce electricity tariffs by Rs8 to Rs10 per unit while simultaneously addressing the circular debt crisis, after the International Monetary Fund (IMF) rejected an earlier proposal to cut tariffs through tax reductions.
The News reported, citing official sources, that the plan leverages fiscal space created by a Rs1.3 trillion reduction in debt servicing payments, with Rs1 trillion allocated to settle the cash-strapped power sector’s outstanding dues. The move is expected to lower the baseline electricity tariff, currently at Rs35.70 per unit, providing significant relief to consumers.
A high-level committee, chaired by Deputy Prime Minister Ishaq Dar, is leading efforts to finalise the new tariff structure. The government has prioritized addressing circular debt, which currently stands at Rs2.4 trillion, by injecting Rs1 trillion to ease the sector’s financial strain.
The development comes ahead of the IMF’s review mission set to visit Islamabad on March 4 to assess progress under the $7 billion Extended Fund Facility (EFF).
While officials remain optimistic, it remains unclear how the IMF will respond to the proposed tariff reduction. However, IMF’s Resident Chief Mahir Binici said the matter would be discussed during the review.
A key factor enabling this plan is the recent reduction in Pakistan’s policy rate from 22% to 12%, which has lowered the debt servicing bill to Rs8.4 trillion for the ongoing fiscal year. However, a separate challenge looms, as the Federal Board of Revenue (FBR) faces a revenue shortfall of Rs468 billion in the first seven months of FY25. If the trend persists, officials warn the annual shortfall could reach Rs1 trillion.
As discussions with the IMF near, the government remains focused on finding a balance between fiscal responsibility and consumer relief, with tariff cuts and debt settlement measures expected to play a key role in economic stabilization efforts.
