The government of Pakistan had planned to announce a significant reduction in retail electricity prices, aiming to provide relief to consumers, especially the low- and middle-income households struggling with runaway inflation. However, these plans were unexpectedly blocked by the International Monetary Fund (IMF), which is overseeing the country’s $7 billion loan program. As a result, the promised reduction of Rs8 per unit in electricity costs was scrapped, leaving consumers disappointed. Instead, they faced another blow in the form of a Rs10 per liter increase in the petroleum levy, further straining their finances.
The government had initially hoped to ease the burden on consumers through a reduction in electricity tariffs. During the recent performance review with the IMF, Pakistani authorities presented a proposal to reduce electricity prices by around Rs2 per unit. This was based on savings anticipated from renegotiating power purchase agreements with independent power producers (IPPs). However, the IMF rejected this proposal, arguing that such a move would undermine fiscal targets and the country’s financial stability. In an attempt to make up for this lost opportunity, the government raised the petroleum levy to a maximum of Rs70, hoping to divert the additional revenue to mitigate the lack of relief on electricity tariffs.
This situation reflects how deeply Pakistan has come to rely on the IMF, with the global lender now playing an influential role in shaping key economic policies. While this oversight by the IMF can be seen as intrusive and a challenge to national sovereignty, it’s often argued that such measures are necessary. In a country where ruling elites tend to prioritize political gains over long-term reforms, the IMF’s interventions may be a way to ensure that essential economic decisions are made for the overall good, rather than being driven by short-term political interests.
On the surface, the IMF’s rejection of the electricity tariff reduction appears to go against the interests of the middle class, which has already suffered from significant price hikes. Electricity prices have risen by over 150% since 2021, exacerbating the financial strain on ordinary citizens. The reasons for high electricity prices are multifaceted: inefficiencies in the transmission and distribution systems, power theft, mismanagement by distribution companies, and a heavy reliance on expensive imported fuels, among others.
While the government’s intention to reduce power prices is commendable, the long-term solution lies not in quick fixes but in addressing the structural issues within Pakistan’s energy sector. Only by tackling inefficiencies, corruption, and the over-dependence on imported fuels can sustainable reductions in electricity tariffs be achieved. Until then, consumers will continue to bear the brunt of a policy-driven economy, shaped not only by local politics but also by the global financial institutions that hold the purse strings.
