The government has assured the IMF that base electricity tariffs will be raised in January 2027 under the annual tariff adjustment mechanism to curb financial losses in the energy sector.

The increase is expected to reflect fluctuations in global energy markets, including the impact of ongoing tensions in the Middle East.

Sources said nearly Rs300 billion of the approved subsidy will be allocated to offset losses stemming from electricity theft and poor bill recovery.

The subsidy will also help bridge tariff differentials between state-run distribution companies and K-Electric.

Pakistan has pledged to ensure full cost recovery through timely tariff adjustments while distributing the financial burden across different consumer categories in a balanced manner.

The government also reiterated its commitment to continuing structural reforms aimed at improving the financial viability of the power sector.

However, concerns persist over the effectiveness of these measures, as past tariff hikes have failed to significantly reduce the country’s mounting circular debt.

Officials estimate that the circular debt could increase by an additional Rs300 billion in the next fiscal year, posing a major challenge.

The IMF has maintained the deadline of 2031 for eliminating circular debt in the power sector. In parallel, Pakistan has committed to finalising revised agreements with independent power producers (IPPs) by June 2026.

A separate financial dispute between the government and K-Electric is expected to be resolved by December 2026 under the agreed timeline.

On the privatisation front, the sale of major power distribution companies in Islamabad, Gujranwala, and Faisalabad is unlikely to materialise this year.

However, with IMF consent, the process is expected to be completed next year.

In addition, the government has assured the lender of accelerating renewable energy projects and introducing a new financing mechanism for the power sector management company.

Notably, the IMF has refused to allow subsidies on petrol and diesel, prompting the government to explore alternative fiscal measures to manage the impact of fuel pricing on consumers.