Govt to end untargeted subsidies
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 conditions agreed for a $1.2 billion climate support loan.
This will impact residential consumers having up to 300 units of monthly consumption, particularly lower and middle?income people who have installed multiple electricity meters to divide their consumption. By spreading monthly consumption over two or three meters, these users avoid abnormally high rates that hit 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 tariff differential subsidies, mostly for up to 200?unit consumers, agriculture tube wells, and consumers in tribal areas and Azad Jammu and Kashmir.
Government sources said the fresh commitment was 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 this condition as part of the $1.2 billion climate facility, which requires aligning energy sector reforms with Pakistan's national climate change commitments.
Speaking at the second edition of "The Breathe Pakistan International Climate Change Conference", organised by Dawn Media, the finance minister said 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. He again reiterated the float of $250 million Panda bonds this month, planned to borrow for financing environment?friendly and health projects.
According to the understanding with the IMF, the government will implement a better?targeted subsidy mechanism, which, in the fund's view, would reduce the incentive to over?consume electricity among higher?income consumers and reduce pressure on industry to deliver lower tariffs that are not aligned with cost.
The government and the IMF agreed that targeted subsidies would also lead to reduced consumption of subsidised units, minimising the incentive for theft among lower?income consumers and thus lowering energy prices. However, BISP currently has only 10 million registered families in its database, compared with about 22 million total electricity users 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. It is working with the World Bank to link electricity consumers to BISP's National Social and Economic Registry database. Before enforcing the targeted subsidy plan from January next year, the government plans to check the efficacy of the systems by August this year to determine eligibility criteria. To develop a payment mechanism for targeted subsidies, it also plans 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. However, many believe that most of these policy actions are aimed at taking more foreign loans.
Finance Minister Muhammad Aurangzeb 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," he said. He asserted that Pakistan was now in a "very good place", hailing the National Disaster Management Authority's work and highlighting that "AI?led early warning systems" were in place.
The minister 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, as evidenced during the catastrophic 2022 floods and the severe 2025 floods.
Pakistan signed the $1.2 billion loan facility in return for a commitment to mainstream climate issues into budget and investment planning; improve water system resilience and disaster response financing coordination; enhance the enabling environment for green investments by strengthening Pakistan's climate information architecture; promote green mobility and transport decarbonisation; and align energy sector reforms with national climate change commitments.
To qualify for the $200 million tranche that the IMF is approving on May 8, Pakistan fulfilled conditions to issue guidelines for the management of climate?related financial risks and new guidelines to enable listed companies to disclose climate?related risks and opportunities.
Pakistan also assured the IMF that it was moving towards establishing a framework to coordinate federal and provincial disaster risk financing needs under the National Disaster Risk Financing Strategy, and making progress towards a comprehensive system for identifying and prioritising climate?relevant spending.
The government has promised to increase the climate weight in public investment procedures to at least 30% for infrastructure projects, 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 irrigation tax from farmers by August next year.