Electricity Subsidies May Be Restricted to Deserving Consumers Under New IMF-Linked Plan
The government is preparing to overhaul its electricity subsidy framework by limiting financial support strictly to low-income households, subject to approval from the International Monetary Fund. The proposal, finalized by the Power Division, is expected to be discussed in upcoming negotiations with the IMF as part of broader fiscal reforms.
Under the new framework, all electricity consumers would initially be charged the full cost of power. Subsidies would then be provided only to households identified as financially vulnerable through data from the Benazir Income Support Programme. Eligibility would be determined based on verified monthly income levels, ensuring targeted financial assistance.
This shift marks a significant departure from the current system, where cross-subsidies are commonly used to balance tariff adjustments. At present, certain consumer categories indirectly bear additional costs to offset subsidies provided to others. The revised approach aims to eliminate this practice entirely.
Officials believe that ending cross-subsidies will promote greater transparency in electricity pricing. By charging all users the actual cost of power generation and distribution, the government intends to create a more sustainable and equitable energy model. Budgeted subsidies would be allocated directly to deserving households rather than being absorbed across sectors.
The reform is also aligned with ongoing discussions with the International Monetary Fund, which has consistently encouraged Pakistan to implement structural changes in its energy sector. Reducing untargeted subsidies is often viewed as a key step toward improving fiscal discipline and minimizing circular debt in the power sector.
If approved, the policy could significantly impact middle- and higher-income electricity consumers, who may no longer benefit from indirect tariff relief. However, policymakers argue that targeted assistance through BISP will ensure that low-income families remain protected from rising energy costs.
The proposed mechanism is designed to strengthen social protection while reducing inefficiencies. By using verified income data, authorities aim to prevent misuse and ensure that subsidies reach those who genuinely need support.
As negotiations with the IMF progress, the electricity subsidy reform is likely to become a central topic. The outcome could shape Pakistan’s energy pricing structure and fiscal strategy in the months ahead, potentially redefining how public funds are allocated within the power sector.
