IMF objects to Pakistan’s Rs990 billion power subsidy plan, questions Rs400 billion cover for theft, losses

The International Monetary Fund (IMF) has objected to Pakistan’s proposed Rs 990 billion allocation for power subsidies in the FY2026-27 budget, an 11% increase of Rs 100 billion over the current year, including more than Rs 400 billion earmarked to offset losses from electricity theft and system inefficiencies, The Express Tribune reported, citing government sources.

The global lender asked the government to bring the proposed subsidy allocation below the current level of Rs 893 billion.

The Power Division argued that the higher requirement includes costs linked to loan write-offs for K-Electric and increased interest payments associated with circular debt after China did not agree to renegotiate energy contracts.

Sources said that the IMF had reduced power subsidies to Rs 893 billion for the current fiscal year to offset a shortfall in collections following implementation of the captive power plants levy. 

They added that the IMF and Pakistani authorities also differed over projections for the flow of new circular debt in FY2026-27 due to recoveries and theft.

According to the sources, the Power Division projected more than Rs 500 billion in additional circular debt during the next fiscal year. They said the IMF pushed for the flow to be limited to Rs 300 billion to Rs 325 billion, which they said is below the projection provided by the Power Division.

Government officials have previously said theft and inefficiencies are not included in consumer tariffs and are instead covered through subsidies financed by the budget. The sources said the IMF was told that losses have been difficult to reduce in some areas due to law and order constraints, while the Fund sought explanations for higher losses in Sindh.

The sources said boards of Hyderabad Electric Supply Company and Sukkur Electric Power Company have completed their terms and the government is working on nominating new members. They added that, under the coalition arrangement, nominations for these boards are linked to the Pakistan Peoples Party.

On the solar policy, the sources said the Power Division informed the IMF that the government is shifting from net metering to a net billing framework. Under the proposed approach, the sources said, electricity sold from the grid and electricity purchased from solar users would be treated as separate transactions, with grid supply priced at prevailing rates that can go up to Rs 60 per unit and solar purchases priced at under Rs 9 per unit.