Power tariff hike

Improving financial health of power distribution companies, addressing circular debt’s root causes are also essential

The IMF’s financial assistance to Pakistan came with strict conditions, and now the federal cabinet’s recent approval for a significant increase in the base power tariff, up to Rs7.5 per unit, has sparked concerns among citizens and businesses. The IMF had argued that Pakistan’s power economics were unsustainable, necessitating corrective measures.

While these measures may address the power sector’s financial needs, collateral damage to middle-class citizens amid economic slowdown is a serious concern. In such a situation, balancing the need for revenue with the potential burden on consumers becomes vital for economic growth and development. The government faces a difficult task of meeting IMF demands while safeguarding citizens’ well-being. Exempting lifeline consumers and protecting vulnerable segment from the tariff hike is a positive step. However, residential consumers and commercial users will bear the brunt of the increase, exacerbating their financial woes. Small and medium-sized enterprises, crucial for economic growth, may struggle to sustain operations, and households will face challenges coping with rising electricity bills during the summer heat. These tariff hikes could lead to further inflationary pressures, affecting production costs, transportation, and living expenses. Negotiations with the IMF have not been smooth sailing, and while it is impossible to please all concerned parties, the government must prioritise and strike a delicate balance. To mitigate adverse effects, alternative measures should be explored. Investing in energy efficiency, promoting renewable energy, and implementing conservation initiatives can reduce the burden on consumers. Improving the financial health of power distribution companies and addressing circular debt’s root causes are also essential.

While the situation is such that meeting IMF conditions is crucial for economic stability, the government must carefully consider the impact on citizens — just like how the IMF largely focuses on ensuring loan repayment. Balancing these demands requires thoughtful policies that prioritise citizen welfare while addressing the power sector’s financial needs.

Published in The Express Tribune, July 24^th, 2023.

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