Following reassurances from the Energy Ministry (Petroleum Division) of productive discussions with the International Monetary Fund (IMF), the IMF has rejected Pakistan’s proposed measures for rationalizing tariffs and reducing circular debt. Nathan Porter, IMF’s Mission Chief to Pakistan, stated late Monday night that the proposed plan fails to address underlying issues. He expressed doubts about the tariff rationalization plan’s effectiveness in achieving circular debt neutrality and highlighted potential additional burdens on vulnerable households.
Porter emphasized the importance of restoring the viability of Pakistan’s energy sector for economic recovery and fiscal sustainability. He called for broad-based reforms, including reducing energy costs, enhancing compliance, minimizing theft and losses, discontinuing captive power, and improving governance and management of DISCOS, alongside regular tariff adjustments.
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Regarding the circular debt reduction plan, Porter cautioned against fiscal risks associated with the complex transactional chain involved and the continued reliance on supplementary grants, which have strained fiscal accounts in recent years.
Despite the rejection, Porter stated the IMF’s openness to collaborating with the government and other international partners to develop a sustainable reform plan addressing the aforementioned issues. However, this statement contradicts earlier assertions by the Ministry of Energy (Petroleum Division), raising doubts about Pakistan’s ability to address these agenda items effectively.
The proposed tariff rationalization aimed to reduce industry tariffs from 14 cents per unit to 8.5-11.75 cents per unit through a subsidy-neutral approach. Additionally, the plan intended to settle the energy sector’s circular debt stock of Rs. 1.27 trillion using funds from the Government of Pakistan.