Government and IMF reach accord on utility price increase
Pakistan Braces for Power Tariff Hikes from 2025: Here's the Dish
The government of Pakistan looks set to step up electricity tariffs from July 2025, as they reach an agreement with the International Monetary Fund (IMF) on annual rebasing. This revelation comes from our trusted sources within the Finance Ministry, as reported by Business Recorder.
To be precise, the power sector's revenue requirements will be met, and a subsidy envelope of Rs 1.036 trillion has been allocated for fiscal year 2025-26. Interestingly, the Petroleum Development Levy, which amounts to Rs 182 billion, will be counted towards FY26 subsidies.
Potential Increase in Power Bills
During the negotiations between Pakistani authorities and the IMF mission, both parties agreed that any additional financial needs would be addressed through tariff adjustments during the July rebasing exercise while maintaining a progressive power tariff structure. In short, this means that electricity bills could be going up in the coming years.
The IMF emphasized the importance of fiscal discipline, with subsidy levels expected to remain within 0.8% of the GDP. Moreover, these subsidies will be tied to credible targets for reducing losses. The Power Division has been instructed to take all necessary steps to implement these agreements.
Possible Exceeding of Subsidy Allocation
The government had originally earmarked Rs 1.190 trillion for the power sector for FY2024-26. However, due to the need for additional subsidies, the Power Division has secured approval for the same. The Finance Division has revised and communicated provisional Indicative Budget Ceilings (IBCs), allocating Rs 636.136 billion for sector subsidies under the recurrent budget for FY2025-26, up from the earlier allocation of Rs 400 billion.
However, it remains unclear whether the Power Division has utilized the full subsidy allocation or if deviations have occurred. Sources within the Power Division anticipate subsidies for FY2025 to exceed Rs 1.2 trillion, driven by growing support for residential consumers and persistent circular debt obligations.
Looking Ahead: What This Means for Consumers
While the government claims to avoid providing subsidies on electricity and gas, the combination of rising electricity tariffs and other utility price increases, such as gas and petroleum, may place additional financial strain on Pakistan's citizens.
In the broader context, this power tariff increase is part of Pakistan's economic reforms, aimed at addressing the energy sector's challenges and stabilizing the country's economy under the IMF agreement. However, these measures may lead to increased costs for consumers and potential economic hardships in the short term.
- Given the agreement with the IMF to address any extra financial needs through tariff adjustments, and the rising power sector revenue requirements, there's a high likelihood that electricity bills will increase significantly starting from July 2025.
- As the Power Division anticipates subsidies for FY2025 to exceed Rs 1.2 trillion, driven by growing support for residential consumers and persistent circular debt obligations, the potential exceeding of the allocated subsidy might result in increased financial burden for consumers, exacerbating the existing economic hardships.
