The International Monetary Fund (IMF) has approved the government’s proposal to reduce electricity rates as part of discussions surrounding the disbursement of the next $1 billion tranche, sources confirmed on Tuesday.
Pakistan’s IMF Agreement and Economic Goals
In July, Pakistan and the IMF finalized a $7 billion, three-year bailout package aimed at stabilizing the economy and fostering sustainable growth. The 37-month Extended Fund Facility (EFF) program consists of six performance reviews, with the release of each tranche contingent upon meeting agreed-upon economic targets.
A crucial aspect of the agreement is increasing Pakistan’s tax-to-GDP ratio, a key factor in economic stability and debt management. Notably, in 2024, the salaried class became the third-largest contributor to income tax, surpassing textile exporters but trailing behind banks and the petroleum sector.
Electricity Tariff Reduction Plan
Discussions between the IMF and Pakistan’s Power Division focused on the rebasing of electricity tariffs. The National Electric Power Regulatory Authority (NEPRA) and the Power Division have been instructed to make tariff-related decisions in consultation.
As per the approved plan, the government aims to cut electricity rates starting in April, with a proposed base tariff reduction of up to Rs2 per unit. If officially implemented, the reduction in electricity costs could range between Rs1 to Rs2 per unit by April or May.
Concerns Over DISCOs’ Performance and Privatization Plans
The government also presented its privatization roadmap for distribution companies (DISCOs) to the IMF. However, the Fund raised concerns over the slow progress, particularly the failure to privatize two DISCOs by January, and expressed dissatisfaction with their poor performance. The IMF emphasized that reforms in the power sector are crucial for long-term improvements.
Rejected Proposals and Tax Reforms
Last week, the IMF rejected two key proposals:
- Eliminating the goods and services tax (GST) on electricity bills
- Extending the winter relief package for industrial and agricultural consumers
Meanwhile, several relief measures are under consideration for sectors like real estate, property, beverages, and tobacco. Additionally, the upcoming budget may include tax relief for salaried individuals, subject to IMF approval.
Net Metering Changes and Power Purchasing Plan
As part of its power purchasing plan, the government has proposed reducing net metering electricity buyback rates by Rs17 per unit.
Currently, net metering allows consumers to lower their electricity bills by using solar power and selling excess energy back to the grid. However, under the proposed gross metering system, consumers would have to sell all surplus energy to the grid—potentially at a lower rate than the price they pay for electricity.
Previously, electricity generated by net metering users was purchased at Rs27 per unit, whereas the new plan suggests buying it at Rs10 per unit.
This latest round of economic measures underscores the government’s ongoing efforts to balance fiscal stability with energy sector reforms, while working within the framework set by the IMF.
