Pakistan assures IMF to withdraw untargeted power subsidies in January

Agrees subsidies only through BISP; move would impact residential consumers using up to 300 units monthly

Pakistan has assured the International Monetary Fund (IMF) to end untargeted electricity subsidies for all residential consumers and give any further subsidies only through the Benazir Income Support Programme (BISP) as part of the conditions agreed for a $1.2 billion climate support loan.

This will impact the residential consumers having up to 300 units of monthly consumption, particularly those lower and middle-income people who have installed multiple electricity meters to divide their consumption. By spreading the monthly consumption over two or three meters, these users are avoiding abnormally high rates of electricity that hit on consumption of more than 300 units.

Pakistan has promised to shift from untargeted subsidies to the new mechanism of giving money through BISP by January next year. This will free roughly Rs500 billion that are allocated to give tariff differential subsidies, mostly to consumers with up to 200 units, agriculture tube wells, and consumers in the tribal and Azad Jammu & Kashmir region.

Read: IMF seeks removal of SWF powers

The government sources said that the fresh commitment has been given as part of the second review of the Resilience and Sustainability Facility (RSF). Finance Minister Muhammad Aurangzeb said on Wednesday that the IMF executive board would approve $200 million of the RSF loan on Friday.

The IMF has imposed the condition as part of the $1.2 billion climate facility, which requires aligning energy sector reforms with Pakistan’s national climate change commitments.

The finance minister made the statement about the $200 million second tranche of the RSF during the second edition of The Breathe Pakistan International Climate Change Conference, organised by a private media group.

Aurangzeb emphasised that there was a need to focus on existing available financing for climate change, which includes loans from the IMF, the World Bank, and the Asian Development Bank. The minister again reiterated the float of $250 million Panda bonds this month, which is planned to borrow for financing environmentally friendly and health projects.

According to the understanding reached with the IMF, the government would implement a better-targeted subsidy mechanism, which, according to its views, would lead to reduced incentive to overconsume electricity among higher-income consumers and reduce pressure from industry to deliver lower tariffs that do not align tariffs with costs.

The government and the IMF were of the view that the targeted subsidies would also lead to a reduction in consumption of subsidised units, which would minimise the incentive for theft among lower-income consumers and thus lower energy prices.

Also Read: IMF allows Rs830b power subsidies

However, the BISP has only 10 million registered families in its database compared to about 22 million total users of electricity who consume up to 300 units.

The government is already discouraging the use of solar-based power generation to compel people to buy expensive electricity from the national grid.

The government is working with the World Bank to link electricity consumers to the National Social and Economic Registry database of the BISP. Before enforcing the targeted subsidy plan from January next year, the government is planning to check the efficacy of the systems by August this year to determine eligibility criteria.

To develop a payment mechanism for the targeted subsidies, the government is also planning to hire a firm this month, said the sources.

As part of another condition of the $1.2 billion climate facility, Pakistan has already notified new regulations mandating minimum energy standard performance standards-compliant procurement.

Pakistan has assured the IMF that building climate change resilience remains a priority for Pakistan, one of the world’s most climate-vulnerable countries. However, many believe that the majority of these policy actions are aimed at taking more foreign loans.

Read More: IMF allows Rs830b power subsidies

The finance minister on Wednesday stressed the need for all ministries to work together and bring the climate change discourse “into the mainstream”, otherwise it would “remain an academic discussion”.

“It is quite clear that we have to work very closely with our counterparts, ministers of climate change, planning ministry, we need to take a whole of government approach,” the minister said. He asserted that Pakistan was now in a “very good place”, hailing the NDMA’s work and highlighting that “AI-led early warning systems” were in place.

Aurangzeb noted that the country now had “very scientific data” available about what actions ought to be taken.

Despite contributing minimally to global emissions, Pakistan remains among the most climate-vulnerable nations. This was evidenced during the catastrophic 2022 floods and the severe 2025 floods.

Pakistan had signed the $1.2 billion loan facility in return for a commitment to mainstream climate issues into budget and investment planning; improving water system resilience and disaster response financing coordination; enhancing the enabling environment for green investments by strengthening Pakistan’s climate information architecture; promoting green mobility and transport decarbonization; and aligning energy sector reforms with our national climate change commitments.

To qualify for the $200 million tranche that the IMF is approving on May 8th, Pakistan fulfilled the conditions of issuing guidelines for the management of climate-related financial risks and new guidelines to enable listed companies to disclose climate-related risks and opportunities.

Pakistan has also assured the IMF that it was moving toward establishing a framework for coordinating federal and provincial disaster risk financing needs in the context of the National Disaster Risk Financing Strategy.

Also Read: Govt seeks $1b ADB climate loan

It also assured the global lender that the country was making progress toward establishing a comprehensive system for identifying and prioritising climate-relevant spending.

The government has promised to increase the climate weight in the public investment procedures to at least 30% for infrastructure projects and to develop explicit protocols for scoring projects against criteria; and publish the selection process and distribution of scores for new projects entering the federal public sector development programme.

As part of the lending package conditions, the government has also assured to start digitally charging the irrigation tax from farmers by August next year.