By Staff Reporter
ISLAMABAD: The International Monetary Fund is in talks with Pakistani officials over a proposed revamp of electricity tariffs that could stoke inflation even as it aims to relieve pressure on the nation’s industries, the fund said, stressing that any changes must shield middle- and lower-income households from the brunt of the burden.
The discussions will examine whether the tariff adjustments align with Pakistan’s commitments under its $7 billion Extended Fund Facility and gauge their effects on broader economic stability, including price pressures, the IMF said in a statement on Saturday.
The government unveiled the tariff overhaul last week, a move analysts say is geared toward satisfying IMF conditions ahead of the next program review. The plan scraps a longstanding arrangement where businesses effectively subsidised household power bills, potentially driving up consumer prices while slashing costs for manufacturers. The EFF, a multiyear IMF lending program, targets entrenched economic vulnerabilities and balance-of-payments strains, providing Islamabad with breathing room to implement reforms.
Electricity prices hold outsized sway in Pakistan’s consumer price index, rendering tariff tweaks a flashpoint amid lingering inflationary woes. While consumer prices have cooled to 5.8% from a blistering near-40% peak in 2023, they remain a potent political liability for Prime Minister Shehbaz Sharif’s administration. The power sector, long plagued by circular debt, a vicious cycle of arrears and subsidies rippling through generators, distributors, and the government, has seen repeated rate hikes since 2023 as part of IMF-mandated overhauls.
The IMF noted that circular debt buildup has stayed within program limits, bolstered by better bill collections and reduced losses. Analysts at Karachi-based Optimus Capital Management estimate the revamp could add 1.1 percentage points to inflation over the next year. Industrial tariffs are poised to drop 13% to 15%, stripping away about Rs102 billion in subsidies, they said.
For middle-class households, the hit could be steeper: bills might rise roughly 50%, according to the firm’s projections. The plan, which awaits only formal nod to take effect, underscores the trade-offs in Pakistan’s IMF pact, where utility price surges have been a cornerstone to prop up cash-strapped state-owned power entities. Pakistan weathered one of Asia’s most severe inflation surges in 2023, fueled by a depreciating rupee, escalating fuel costs, and reform-linked price adjustments. Though the pace has eased, experts caution that power tweaks could reignite upward momentum.
“Because purchasing power for the average household had significantly declined, the change adds to the compounding effect of inflation which we have experienced post-2022,” said Ahtasam Ahmad, energy finance program lead at consultancy Renewables First. The overhaul highlights frictions in the IMF program, which has enforced sharp utility increases since last year to stabilize the sector. Industrial lobbies argue elevated rates undermine export edges in textiles and manufacturing, key pillars of Pakistan’s economy.
Residential users consuming 100 to 300 units monthly, a bulk of paying households—face hikes of up to 76% from new fixed charges, per calculations by Arzachel, a Karachi energy advisory firm. Even the poorest brackets aren’t spared: those using 1 to 100 units will see fixed fees climb to 400 rupees from zero, the National Electric Power Regulatory Authority said on Monday. The regulator also slashed buyback rates for rooftop solar owners feeding excess power back to the grid, ditching a prior net-metering setup that equated exported and imported electricity values.
Solar adoption has boomed, trimming emissions and household expenses, but it’s dented utility revenues as grid demand wanes amid mounting debts. Sharif on Wednesday mandated a review of NEPRA’s solar policy shifts, instructing aides to block cost shifts from 466,000 solar-equipped users onto the 37.6 million reliant solely on the grid. “Excessively high fixed charges risk driving consumers toward full grid defection, undermining long-term system stability,” Arzachel warned in a Tuesday note.
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