Pakistan, IMF discuss targeted energy subsidies as gas debt reaches PKR 3.6 trillion

Pakistan and the International Monetary Fund discussed energy-sector reforms aimed at containing circular debt and shifting subsidies toward more targeted support for low-income consumers, according to officials familiar with the talks.

The gas sector’s circular debt has reached about PKR 3.6 trillion, with around PKR 1.8 trillion representing principal obligations and the remainder comprising interest and late-payment surcharges, the officials said.

The IMF expressed concern over the accumulation of gas-sector debt and called for subsidies to be better targeted.

The government and the lender discussed a proposal under which eligible consumers could receive gas subsidies directly through cash transfers under the Benazir Income Support Programme.

Officials told the IMF that the gas sector was not yet ready to implement a fully targeted subsidy mechanism because of data and ownership-related challenges.

The government said reforms to the gas tariff structure were aimed at controlling circular debt. The Petroleum Division also argued that lower tariffs for protected consumers had widened the gap between regulated prices and the cost of supplying gas.

The two sides discussed reducing cross-subsidies and moving toward tariffs that better reflect supply costs. Earlier government plans had envisaged a multiyear strategy to address the PKR 3.6 trillion gas-sector debt.

How could Pakistan change energy subsidies?

Pakistan and the IMF are discussing a shift from tariff-based support toward direct cash assistance for eligible low-income consumers. Under the proposal, support would be delivered through BISP rather than through lower energy tariffs, separating social protection from energy pricing while helping contain circular debt.

Similar discussions are underway in the electricity sector.

Pakistan and the IMF are expected to hold further talks on replacing tariff-based electricity subsidies with direct cash support for low-income consumers.

Officials said further policy-level discussions would cover how eligible consumers would be identified and how assistance would be transferred.

The IMF’s existing program with Pakistan already provides for replacing electricity tariff-differential and cross-subsidies with targeted support for low-income consumers through BISP.

For the gas sector, however, officials said data and ownership-related challenges would need to be addressed before a similar targeted mechanism could be implemented.

The IMF also questioned an increase of around PKR 65 billion to PKR 70 billion in power-sector circular debt, according to officials.

Power-sector circular debt stood at about PKR 1.675 trillion at the end of June 2026, according to the briefing.

Pakistani authorities told the IMF that the power sector had performed better than program targets on recoveries and reductions in transmission and distribution losses.

Officials attributed part of the increase in circular debt to lower-than-required releases under the tariff differential subsidy. Around PKR 95 billion less than the required amount was released under the subsidy head, according to the briefing.

Delayed payments of about PKR 200 billion by K-Electric also contributed to the buildup, officials said.

After reviewing comparable data, the IMF was satisfied with the power-sector debt position, according to officials.

How did Pakistan manage fuel supplies during the regional crisis?

The IMF mission praised Pakistan’s handling of petroleum product supplies during the regional crisis, according to officials.

Despite disruptions in the region, Pakistan did not face a shortage of petroleum products, while the government maintained supplies without imposing an additional burden on the federal budget, the officials said.

The discussions form part of Pakistan’s ongoing IMF review, which includes reforms aimed at improving the financial sustainability of the electricity and gas sectors and preventing a further buildup of circular debt.