ISLAMABAD: Pakistan and the International Monetary Fund (IMF) held detailed discussions on the circular debt and subsidy mechanisms in the gas and power sectors during ongoing economic review talks.
According to sources, the IMF expressed concern over the rising circular debt in the gas sector and called for subsidies to be better targeted at deserving consumers.
The circular debt of the gas sector has reached Rs3.6 trillion, sources said.
During the talks, the government and the IMF reviewed a proposal to provide gas subsidies directly to eligible consumers. The government also discussed a proposal to provide cash transfers for gas subsidies through the Benazir Income Support Programme (BISP).
Officials briefed the IMF that the gas sector was not yet fully prepared to implement a system of directly targeted subsidies. The authorities said reforms in the gas tariff structure were aimed at controlling the accumulation of circular debt and addressing the sector’s financial problems.
According to the Petroleum Division’s briefing, lower gas prices for protected consumers had widened the tariff differential. The meeting also discussed reducing cross-subsidies in the gas sector.
Officials said around Rs1.8 trillion of the gas sector’s total liabilities represented the principal amount, while the remaining amount comprised interest, surcharges and other financial costs.
The IMF mission also appreciated Pakistan’s petroleum pricing mechanism, sources said. The mission noted that despite the regional crisis, Pakistan had not experienced a shortage of petroleum products.
The IMF team also praised Pakistan for maintaining petroleum supplies without placing an additional burden on the government budget.
The talks also covered an increase of Rs65 billion to Rs70 billion in the circular debt of the power sector. Officials briefed the IMF that the power sector’s circular debt stood at Rs1.675 trillion at the end of June 2026.
According to officials, the power sector performed better than the IMF’s targets in terms of recoveries and reductions in line losses.
However, the briefing noted that the power sector’s circular debt increased partly because less funding was released under the tariff differential subsidy. Officials said around Rs95 billion less was released under the subsidy head.
The delay in payments of around Rs200 billion to K-Electric also contributed to the increase in the power sector’s circular debt, according to the briefing.
Sources said the IMF mission expressed satisfaction with the power sector’s debt position based on comparative data.
The government and the IMF also discussed making electricity and gas subsidies more targeted. Further talks will be held before reaching an agreement on the issue.
The proposal to provide direct cash assistance to low-income electricity consumers was also reviewed during the negotiations.
