Conditional approval from IMF, electricity subsidy will be provided but prices will increase in January 2027

The International Monetary Fund has allowed Pakistan to provide a subsidy of Rs830 billion for the power sector in the budget for the upcoming fiscal year 2026-27, however, a new condition has been imposed on it to increase electricity prices in January next year.

According to sources, about Rs300 billion of this subsidy will be allocated to cover losses due to power theft and under-recovery of bills. The IMF has clarified that electricity will be made more expensive in January 2027 under the annual tariff adjustment, which will include the effects of the global energy market and the situation in the Middle East.

The government has assured that full cost recovery will be ensured by timely adjustments in electricity tariffs and its burden will be distributed in a balanced manner among different consumers.

Sources say that the approved subsidy is about 16 percent less than the government’s demand. This amount includes tariff differences, former FATA dues, agricultural tube wells and circular debt payments.

On the other hand, the IMF did not allow subsidies on petrol and diesel, even though prices continue to rise globally, which experts are calling a contradictory policy.

The government has also promised to settle the dues of independent power producers by June 2026 and resolve the dispute with K-Electric by December 2026.

According to officials, the process of reforms in the energy sector will continue, however, experts say that the failure to reduce circular debt despite price increases in the past remains a major challenge.