ISLAMABAD : The International Monetary Fund (IMF) has urged Pakistani authorities to intensify efforts to control the power sector’s circular debt, warning that it remains detrimental to the country’s economy.
According to the Fund, the government has reaffirmed its commitment to achieving energy sector viability and preventing the recurrence of circular debt. However, it stressed that sustained efforts are critical to maintaining financial discipline in the sector.
“It is essential to ensure sustainability through timely tariff adjustments that guarantee full cost recovery. Moreover, energy price subsidies should be avoided due to their regressive nature, high fiscal costs, and distortionary impact,” the IMF said in a press release issued after reaching a staff-level agreement on the third review under Pakistan’s Extended Fund Facility (EFF) and the second review under the Resilience and Sustainability Facility (RSF).
Under the agreement, Pakistan is set to receive the final tranche of approximately $1.2 billion, bringing total disbursements under the two arrangements to about $4.5 billion.
The IMF noted that authorities remain committed to advancing structural reforms aimed at improving efficiency in the energy sector. These include strengthening transmission and distribution systems, privatizing inefficient generation companies, completing the transition to a competitive electricity market, and facilitating a shift toward renewable energy. It also emphasized the need to rationalize generation capacity in line with demand while ensuring grid stability.
The Fund further highlighted that, in response to recent volatility in food and fuel prices, the government is focusing on providing targeted and sustainable support to vulnerable households. Efforts are underway to enhance the effectiveness of the Benazir Income Support Programme (BISP), including inflation-adjusted cash transfers, expanded beneficiary coverage, and improved payment systems.
In parallel, the authorities have reiterated their commitment to increasing federal and provincial spending on health and education, in line with programme objectives, to promote human capital development and inclusive economic growth. Ends
