In a surprising turnaround, Finance Minister Muhammad Aurangzeb disowned the proposal he made just a day earlier in his budget speech to impose a 10% surcharge on electricity bills. The announcement came despite Pakistan having previously assured the International Monetary Fund (IMF) that the surcharge would be implemented to help manage circular debt repayments.
According to media reports, Senator Muhammad Aurangzeb stated that there would be no such surcharge, contradicting his statement in parliament on Tuesday, where he proposed an amendment to the Nepra Act that would empower the federal government to impose the 10% Debt Servicing Surcharge (DSS) for a specific period and purpose.
In his budget speech, the finance minister had explained that the DSS would be used strictly for repaying the principal debt associated with the circular debt, and not for paying interest or profit. However, Aurangzeb clarified that the surcharge was initially part of the Power Division’s proposal, and the government’s focus was on converting costly credit into cheaper credit to manage the circular debt.
He also confirmed that the government had secured Rs1.3 trillion in bank borrowing to address power sector debt. Additionally, he stated that recoveries in the power sector had improved, though transmission losses still need to be reduced. As a result, power sector subsidies will be reduced to Rs1.036 trillion in FY26, down from Rs1.19 trillion, saving Rs154 billion.
Despite these developments, an IMF staff report dated May 17 stated that Pakistan had committed to adopting legislation by June 2025 to remove the DSS cap, enabling the country to finance Rs1.252 trillion in new loans through DSS revenues over six years. This would help repay Rs683 billion in loans to Pakistan Holding Limited (PHL) and Rs569 billion in arrears to producers. If DSS revenues fall short, the surcharge would be increased to meet the repayment targets.
