The International Monetary Fund has given the green light to the government’s plan for reducing electricity rates during discussions on the disbursement of the next installment of $1 billion, sources said on Tuesday.
In July, Pakistan and the IMF finalised a three-year, $7 billion aid package designed to help the country establish macroeconomic stability and foster stronger, more inclusive growth.
The 37-month Extended Fund Facility programme includes six reviews throughout the duration of the bailout. The release of the next tranche, approximately $1 billion, will depend on the outcomes of the forthcoming performance review.
A key focus for Pakistan in this loan agreement is increasing the tax-to-GDP ratio, which is essential for stabilising the economy and managing debt. In 2024, the salaried class emerged as the third-largest contributor to income tax, ranking behind banks and the petroleum sector while surpassing textile exporters.
Sources said that the IMF mission has engaged in discussions with the Power Division regarding the electricity tariff rebasing.
The Fund has instructed the National Electric Power Regulatory Authority and the Power Division to make decisions in consultation.
Under the plan, the government intends to reduce electricity rates starting next month in April, which includes a proposal to decrease the base tariff by up to Rs2 per unit.
There could be a reduction of 1 to 2 rupees per unit in electricity rates starting in April or May, if the plan is officially approved, they added.
The government has also shared its plan for the privatization of distribution companies (DISCOs) with the IMF mission. The IMF has “expressed concerns over the lack of progress” in privatising two DISCOs by January and has shown “dissatisfaction with their poor performance.”
It has maintained that improvements in the power sector were not feasible without enhancing the performance of DISCOs.
Last week, the Fund rejected a proposal to eliminate the goods and services tax on electricity bills. It also denied permission to extend the winter relief package for the industrial and agricultural sectors throughout the fiscal year.
There are various proposals under consideration aimed at providing relief to sectors such as real estate, property, beverages, and tobacco.
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In the upcoming budget, there is also a plan to reduce the tax burden on salaried individuals, which will be contingent upon IMF approval.
Moreover, the federal government has also planned to cut the tariffs for electricity purchased from net metering consumers by Rs17 under its “power purchasing plan”.
Net metering, the existing system, allows consumers to reduce their electricity bills by using solar power. In contrast, gross metering, a suggested modification, involves selling all the surplus energy back to the grid, possibly at a rate lower than the consumers pay to use it.
The government intends to buy electricity at a rate of up to Rs10 per unit. In the recent past, electricity generated by net metering users was being bought at a rate of 27 rupees per unit.
