IMF Rejects Pakistan Proposal to Lower Industrial Electricity Rates

The International Monetary Fund (IMF) has rejected Pakistan’s suggestion to lower industrial electricity tariffs by Rs2.70 per unit, citing the necessity for comprehensive reforms in the power sector rather than piecemeal actions. This move was reported by local news outlets.

The Energy Ministry had put forward this proposal to reduce electricity costs for the industrial sector, aiming to provide Rs37 billion in relief between February and June of this fiscal year, with an annual impact estimated at Rs89 billion.

However, the IMF opposed this reduction, arguing that the government should focus on transitioning to a more targeted subsidy system rather than completely eliminating cross-subsidies. At present, cross-subsidies are used to offset electricity costs for low-income residential consumers. In partnership with the IMF, the government plans to implement a revised subsidy system by July this year to address the issue in a more sustainable manner.

This was the second attempt in less than a year to reduce industrial electricity rates. In June 2024, Prime Minister Shehbaz Sharif announced a reduction of Rs10.69 per unit to support industrial production and exports. However, this initiative did not extend to residential consumers, particularly those using under 300 units per month, who continue to subsidize lower-income households.

Additionally, the IMF had previously rejected another proposal to cut residential electricity tariffs by Rs4.80 per unit by removing taxes, which would have provided an estimated Rs580 billion in annual relief but was deemed financially unsustainable