Islamabad, May 18, 2025 — Pakistan’s government has finalized a set of economic reforms in collaboration with the International Monetary Fund (IMF) to stabilize its economy, with significant changes to energy pricing set to take effect from July 1, 2025. These measures, aimed at reducing the fiscal deficit and tackling the country’s escalating energy sector debt, are expected to increase the cost of fuel, electricity, and gas for consumers.
Energy Price Hikes on the Horizon
As part of the agreement, the government will introduce a carbon levy of Rs5 per litre on petrol and diesel, alongside a new debt service surcharge on electricity bills. This surcharge, designed to fund a Rs1.25 trillion loan from commercial banks, will be repaid by consumers over six years at a rate of 10% on their power bills. The government retains the flexibility to adjust this surcharge if financial pressures escalate.
Electricity tariffs will undergo an annual rebasing starting July 2025, while gas prices will see two adjustments: one in July 2025 and another in February 2026. Provincial governments have agreed to refrain from offering subsidies on electricity or gas, aligning with the IMF’s push for fiscal discipline.
Tackling the Circular Debt Crisis
Pakistan’s energy sector is grappling with a massive circular debt, with electricity debt reaching Rs2.44 trillion as of January 2025 and gas debt standing at Rs2.29 trillion by June 2024. To address this, the government has devised a Circular Debt Management Plan, set for cabinet approval in July 2025. The plan includes borrowing from commercial banks to manage immediate liabilities, with repayments spread over six years via consumer bills.
The National Electric Power Regulatory Authority (NEPRA) will maintain its role in implementing quarterly tariff adjustments and timely fuel cost recoveries. The government aims to phase out broad electricity subsidies, focusing only on targeted support for vulnerable groups. By 2031, Pakistan hopes to eliminate its circular debt entirely through improved cost recovery and negotiations with Independent Power Producers (IPPs), with Rs348 billion in payments slated for clearance by June 2025.
Economic Reforms and Public Impact
The IMF-mandated reforms are part of a broader strategy to strengthen Pakistan’s fiscal health ahead of the 2025–26 federal budget. While the government reported Rs450 billion in energy sector gains during the first half of the current fiscal year, the rising cost of living is likely to strain households already facing economic challenges.
Analysts warn that the new levies and surcharges could fuel inflation, particularly for low- and middle-income families reliant on affordable energy. The government has emphasized that these measures are critical to securing IMF support and ensuring long-term economic stability, but public discontent is expected as the cost of essentials climbs.
Looking Ahead
With the energy sector at a critical juncture, Pakistan’s ability to balance IMF commitments with domestic needs will be closely watched. The government’s focus on cost recovery and debt reduction signals a shift toward market-driven pricing, but the transition may come at a steep cost for consumers. As negotiations with IPPs and debt management efforts continue, the coming months will be pivotal in determining the success of these reforms.
