The International Monetary Fund has urged Pakistan to shift its strategy on power sector circular debt toward comprehensive structural reforms rather than relying on short term flow containment measures. In its staff report issued after the second review under the Extended Fund Facility the IMF stressed the need to address deep rooted financial distortions that continue to undermine the sustainability of the power sector.

The report noted that restructuring of Rs one point two two five trillion in power sector liabilities has significantly improved liquidity and eased fiscal pressure. According to the IMF this step created fiscal space for social spending while settling long pending financial obligations without transferring additional costs to electricity consumers.

To boost grid demand the federal cabinet has approved a three year incremental electricity pricing package for industrial and agricultural users. Under the scheme electricity consumed above a baseline threshold will be charged at a reduced tariff of Rs twenty two point nine eight per unit. The package applies uniformly across sectors and does not allow preferential treatment for any specific industry.

The IMF explained that the scheme includes built in safeguards to maintain cost revenue alignment. A review will be automatically triggered if incremental consumption by industry and agriculture exceeds twenty five percent above the baseline in any month. Semi annual reviews will assess performance and any revenue shortfall will be recovered through higher tariffs on industrial and agricultural consumers.

Despite these measures the power sector circular debt stock has climbed to around Rs one point six trillion highlighting persistent structural weaknesses. The IMF emphasized the urgent need to improve distribution companies collections reduce transmission and distribution losses and implement cost cutting reforms. It also called for greater private sector participation in both distribution and generation companies.

The Fund further urged progress toward a competitive wholesale electricity market and resolution of surplus RLNG and circular debt in the gas sector. It acknowledged that incentives for captive power producers to shift to the national grid have increased industrial electricity consumption by thirty five percent year on year during April to August twenty twenty five helping offset weaker overall demand.