Pakistan has given written assurances to the International Monetary Fund (IMF) that it will replace the existing electricity subsidy system for low-consumption users with a targeted mechanism linked to the Benazir Income Support Programme (BISP) from January 2027, officials familiar with the discussions said.
The move forms part of broader reform commitments under the IMF’s Resilience and Sustainability Facility programme aimed at reducing power sector distortions, improving subsidy targeting and strengthening climate-related financial reforms.
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Currently, households consuming up to 200 electricity units receive subsidised tariffs. However, officials said the existing system has led to misuse, with some consumers reportedly installing multiple electricity meters to keep individual consumption below the subsidy threshold.
“The targeted subsidy will help curb the misuse of this subsidy,” a senior official told local media.
Under the new framework, the government plans to replace the existing tariff differential subsidy and cross-subsidy structure with a targeted support system for low-income consumers through BISP data and the National Socio-Economic Registry database.
“This will replace the budgeted tariff differential subsidy and cross-subsidy system with a targeted budgeted subsidy framework for low-income consumers via BISP,” the official said.
IMF board to review Pakistan tranche
Officials said Pakistan is expected to secure the second tranche of $200 million under the IMF’s Resilience and Sustainability Facility after the IMF Executive Board meeting scheduled for May 8 in Washington.
The government is working with the World Bank to connect electricity consumers with the National Socio-Economic Registry system. Authorities will conduct validity checks before implementing the subsidy model in January 2027.
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Officials also said the government plans to hire an external firm by the end of the current month to develop a payment mechanism for the targeted subsidy programme.
Pakistan’s power sector has long faced criticism for high transmission losses, circular debt and untargeted subsidies that place heavy pressure on public finances. The IMF has repeatedly urged Islamabad to improve energy pricing reforms and narrow fiscal leakages.
Analysts say the proposed subsidy overhaul could become politically sensitive because millions of households currently benefit from subsidised electricity rates under the 200-unit slab system.
Water charges and climate reforms also expanded
The government has also committed to expanding the digital e-Abiana irrigation service charge system to Sindh, Khyber Pakhtunkhwa and Balochistan after introducing it in Punjab.
Authorities plan to roll out the system by August 2027. Officials are also working with the World Bank on irrigation water tariff adjustment mechanisms linked to operations and maintenance cost recovery in Punjab and Sindh by February 2027.
Pakistan further informed the IMF that it had implemented several agreed reform measures under the first review of the Resilience and Sustainability Facility programme.
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According to officials, the State Bank of Pakistan issued climate-related financial risk management guidelines in December 2025. The Securities and Exchange Commission of Pakistan also introduced disclosure guidelines for listed companies regarding climate-related risks and opportunities.
Officials added that the government is developing a framework to coordinate federal and provincial disaster risk financing needs under the National Disaster Risk Financing Strategy by August 2026 with IMF support.
