“Don’t burden lower-income households”: The IMF and Pakistan are debating changes to electricity rates.

In a statement to Reuters on Saturday, the International Monetary Fund stated that it is in talks with Pakistani authorities over proposed improvements to energy tariffs, and that middle- and lower-income households shouldn’t bear the brunt of the changes.It stated in its statement that the current talks with the authorities would determine if the proposed tariff revisions are in line with these promises and examine their possible effects on inflation and macroeconomic stability.

As another review of the program draws near, Pakistan revealed a suggested tariff adjustment that analysts said would reduce industry pressure and raise inflation. The country is working to meet requirements under its $7 billion Extended Fund Facility (EFF).

The EFF is a longer-term IMF loan program intended to assist nations in resolving medium-term balance-of-payments issues and underlying economic vulnerabilities.

Pakistan’s consumer price index heavily weighs electricity, making tariff modifications extremely sensitive at a time when inflation is still a major political and economic pressure point although being far lower than its near-40% peak in 2023.

Circular debt, a web of unpaid bills and subsidies that accumulates among generating companies, distributors, and the government, has long plagued Pakistan’s power sector. Since 2023, IMF-backed reforms have increased tariffs on a regular basis.

The Fund further stated that better performance on recoveries and loss avoidance has helped to keep the growth of the power sector’s circular debt within program targets.

According to sources, the IMF wants to recover super tax arrears within a month.

Pakistan’s Consumer Price Index heavily weighs electricity, thus changes to tariffs are politically and economically delicate, especially as inflation is still a major worry even if it is far lower than its nearly 40% peak in 2023.

Pakistan’s electricity industry has long suffered from growing circular debt brought on by unpaid invoices and subsidies that have accumulated among the government, distributors, and generating corporations. Since 2023, repeated tariff increases have been enacted as part of measures supported by the IMF.

The rise of circular debt has been kept within program targets because to better recoveries and loss reduction initiatives, the IMF stated.