Pakistan Set to Increase Utility Prices in New Budget to Meet IMF Demands
Islamabad: The federal government is preparing to impose a fresh financial burden on the public in the upcoming 2025–26 budget through a significant increase in electricity, gas, and petroleum prices. This move follows major commitments made to the International Monetary Fund (IMF) ahead of budget approval.
Key Price Hikes on the Horizon
The government has finalized a plan to raise tariffs across major utilities starting July 1, 2025. These measures include:
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Electricity: Annual rebasing of power tariffs.
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Gas: Tariff adjustments scheduled for July 1, 2025, and February 15, 2026.
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Petroleum: Introduction of a new carbon levy of Rs 5 per liter on petrol and diesel.
These steps come as part of the broader compliance framework agreed upon with the IMF, aiming to curtail fiscal deficits and reform the energy sector.
No More Provincial Subsidies
According to insiders, provincial governments will no longer provide subsidies on electricity and gas, further intensifying the cost pressure on end consumers.
Circular Debt Management Plan
To tackle the mounting circular debt, the government plans to:
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Borrow Rs 1,252 billion from banks to repay existing power sector dues.
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Recover this amount from consumers over six years by including a 10% Debt Service Surcharge in electricity bills.
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The surcharge may be increased under the government’s discretion.
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Additionally, NEPRA will continue quarterly tariff adjustments and ensure timely implementation of Fuel Cost Adjustments. The government also intends to reduce the electricity subsidy in the new budget and only provide targeted subsidies to vulnerable groups.
Circular Debt Stats and Reforms
By January 2025, electricity sector circular debt reached Rs 2,444 billion, while gas sector circular debt stood at Rs 2,294 billion as of June 2024. Despite some progress — with the energy sector benefiting by Rs 450 billion in the first half of the fiscal year — structural reforms will continue to remain a priority.
As part of this strategy, negotiations with Independent Power Producers (IPPs) are underway, with Rs 348 billion in payments expected by June 2025. The goal is to improve cost recovery, reduce energy prices, and bring circular debt to zero by 2031.
