IMF, Pakistan Discuss Energy Sector Reforms

ISLAMABAD: Pakistan and the International Monetary Fund (IMF) are holding discussions on the country’s economic review, with a focus on the energy sector and rising circular debt, sources said.

The IMF expressed concern over the circular debt in the gas sector, which has reached around Rs3.6 trillion, according to sources.

The IMF called for gas subsidies to be made more targeted. During the talks, a proposal to provide subsidies directly to deserving consumers was discussed.

The government also proposed providing cash transfers for gas subsidies through the Benazir Income Support Programme (BISP). However, the IMF was informed that the gas sector was currently not ready for a direct targeted subsidy system.

Officials briefed the IMF that reforms in the gas tariff system were aimed at controlling circular debt. The Petroleum Ministry said lower gas prices for protected consumers had increased the difference between tariffs.

The two sides also discussed reducing cross-subsidies in the gas sector. Officials said around Rs1.8 trillion of the gas sector’s circular debt represented the principal amount, while the remaining amount consisted of interest and surcharges.

The IMF also praised Pakistan’s petroleum pricing system, sources said.

The IMF mission noted that Pakistan had avoided shortages of petroleum products despite the regional crisis. The mission also appreciated Pakistan for maintaining supplies without placing an additional burden on the national budget.

The IMF also raised questions about an increase of around Rs65 billion to Rs70 billion in the power sector’s circular debt.

According to the briefing, the power sector’s circular debt stood at Rs1.675 trillion at the end of June 2026.

Officials said the power sector had performed better than the IMF targets in terms of recoveries and reducing line losses.

The government told the IMF that lower-than-expected releases under tariff differential subsidies had contributed to the increase in power sector circular debt. Officials said around Rs95 billion less was released under the subsidy.

The delayed payment of around Rs200 billion by K-Electric also contributed to the increase in circular debt, according to the briefing.

Sources said the IMF expressed satisfaction with the power sector debt figures after comparing them with relevant data.

The government and the IMF will hold further discussions on making electricity and gas subsidies more targeted. A proposal to provide direct cash assistance to low-income electricity consumers was also reviewed.