KARACHI:
Government has assured the International Monetary Fund (IMF) of sweeping economic reforms ahead of its 2025–26 federal budget, including hikes in fuel, electricity, and gas prices, officials said, a move likely to place additional financial strain on the population.
The government plans to implement a series of fiscal measures starting July 1 aimed at reducing the fiscal deficit and addressing the country’s mounting energy-sector debt.
These measures include additional levies on petroleum products, a new debt service surcharge on electricity bills, and adjustments to gas tariffs. Electricity prices will be rebased annually beginning July 2025, while gas prices are expected to be adjusted twice — first in July 2025 and again in February 2026.
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Sources said the federal government has committed to imposing a carbon levy of Rs5 per litre on petrol and diesel. Provincial governments are not expected to offer any subsidies on electricity or gas under the new policy framework.
To address the growing circular debt in the energy sector, the government will borrow Rs1.25 trillion from commercial banks. The loan will be repaid by electricity consumers over six years through a 10 per cent surcharge on power bills. The government will retain the authority to increase this surcharge if required.
The IMF has also been assured of a gradual reduction in electricity subsidies as Pakistan targets bringing its circular debt to zero by 2031.
Sources further said the National Electric Power Regulatory Authority (NEPRA) will continue quarterly tariff adjustments and enforce timely fuel cost adjustments. Only targeted subsidies will be provided, and the gap between base tariffs and actual revenue will be narrowed.
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The updated Circular Debt Management Plan is expected to be approved by the cabinet in July. While the energy sector saw gains of Rs450 billion in the first half of the current fiscal year, overall debt levels remain high.
As of January 2025, electricity circular debt had reached Rs2.44 trillion, while gas circular debt was recorded at Rs2.29 trillion by June 2024.
Efforts to reduce the debt burden include ongoing negotiations with Independent Power Producers (IPPs), with Rs348 billion in payments expected to be cleared by June. Officials say improved cost recovery will be key to stabilising energy prices in the long term.
