Pakistan and IMF Set to Finalize Energy Subsidy Overhaul and Climate Reforms

The government of Pakistan, in collaboration with the International Monetary Fund (IMF), is preparing to finalize a framework for targeted electricity and gas tariff subsidies through the Benazir Income Support Program (BISP). This plan also covers adjustments to gas pricing every quarter and the introduction of additional taxes on vehicles powered by liquid fuels.

As part of the Resilience and Sustainability Facility (RSE), these talks will involve discussions among key government officials, provincial representatives, and the Governor of the State Bank of Pakistan.

The discussions include proposals to overhaul the current Tariff Differential Subsidy (TDS) system by replacing it with direct financial rebates for low-income citizens through BISP. This shift aims to make assistance more effective and reduce instances of electricity theft.

In parallel, the government is also considering an anti-theft law aimed at improving the financial health of power distribution companies (DISCOs). Additionally, the Oil and Gas Regulatory Authority (OGRA) will put in place a quarterly tariff adjustment process to better align gas prices with actual costs, thereby mitigating the buildup of circular debt.

On the environmental front, a carbon levy on liquid fuels is under consideration to drive the adoption of electric vehicles (EVs). This would also expand EV charging infrastructure through public-private partnerships, helping Pakistan reach its goal of having 30% of all new vehicles as EVs by 2030.

Further, the discussions will delve into enhancing climate-conscious budgeting, including broadening climate expenditure reporting at the provincial level, releasing annual climate finance reports, and factoring green initiatives into government investment projects. Also on the table is an initiative to improve water revenue collection in Sindh, Khyber Pakhtunkhwa, and Balochistan through the e-Abiana irrigation system.

Lastly, Pakistan plans to strengthen its climate risk management framework by establishing new guidelines based on international banking standards set by the Basel Committee on Banking Supervision (BCBS). The Securities and Exchange Commission of Pakistan (SECP) is expected to introduce a green finance framework to improve corporate climate reporting.

These discussions are expected to reshape Pakistan's approach to fiscal policies, energy reforms, and climate action, aligning them with the IMF’s recommendations.