ISLAMABAD: The International Monetary Fund (IMF) has appreciated Pakistan’s handling of the oil crisis, noting that the country managed to avoid supply disruptions and additional budgetary pressures despite regional challenges during the six-month US-Iran conflict.
However, the Fund has urged the government to accelerate preparations to address the growing gas-sector circular debt and develop a mechanism for providing targeted subsidies to consumers living below the poverty line.
According to sources, initial discussions on shifting gas-sector subsidies from consumer tariffs to direct cash transfers through the Benazir Income Support Programme (BISP) have concluded that the gas sector is not yet ready for such a system because of data and ownership-related challenges.
As a result, the proposed introduction of a uniform gas tariff linked to the average prescribed price of around Rs1,700 per million British thermal units (mmBtu), calculated by the Oil and Gas Regulatory Authority (Ogra), has been considered premature.
The Petroleum Division, headed by Minister Ali Pervaiz Malik, has been advocating uniform gas rates based on Ogra’s recommendations to cover the actual cost of supply, estimated at Rs1,700-1,750 per mmBtu for the two gas utilities. The move is also aimed at reducing cross-subsidies from the industrial sector and containing the gas-sector circular debt.
The gas circular debt has increased to around Rs3.6 trillion, comprising approximately Rs1.8 trillion in principal payables and a similar amount in accrued interest and late-payment surcharges.
A separate Petroleum Division proposal to raise the petroleum levy by a few rupees to help finance part of the gas-sector circular debt has not received support at relevant government forums and has therefore not been presented to the IMF.
The Petroleum Division has also pointed to the protected category for domestic consumers, under which gas is priced at Rs200-350 per mmBtu, as a factor behind the widening pricing gap and accumulation of circular debt.
Only four of the 12 consumer slabs covered the cost of gas supply during winter, while tariffs remained below breakeven levels for nearly eight months of the year, even after substantial fixed charges were introduced.
Documentation challenges
Sources said IMF staff raised concerns over the documentation of gas-meter ownership and premises, which remains incomplete in a significant number of cases.
Consumers frequently do not update meter records after changes in ownership or tenancy, sometimes for decades, to avoid new security deposits and other formalities. This makes it difficult to accurately identify households below the poverty line using existing meter data.
The issue is reportedly even more complicated in the commercial sector, where property titles may remain unchanged while businesses operate from premises transferred through informal arrangements such as pagri.
By comparison, documentation in the power sector is considered considerably more developed despite its much larger consumer base.
The IMF has therefore not yet been convinced that the proposed mechanism for targeted gas subsidies is workable. The Fund has nevertheless continued to push for targeted subsidies and advised the government to undertake further consultations with experts and consultants to develop a more effective mechanism over the longer term.
Power-sector circular debt
The IMF also acknowledged Pakistan’s management of petroleum prices without imposing an additional burden on the national budget or causing shortages of petroleum products.
Sources said the Fund noted that several other countries in the region had experienced supply shortages, additional fiscal burdens on governments or state-owned entities, or a combination of higher fiscal costs and supply disruptions.
The IMF had initially questioned an increase of around Rs65-70 billion in power-sector circular debt, which stood at approximately Rs1.675 trillion at the end of June 2026.
However, IMF staff subsequently recognised that the power sector had “overperformed” against efficiency targets, particularly in bill recoveries and loss reduction.
According to officials, the overall increase in circular debt was primarily attributed to around Rs95 billion in lower disbursements by the Ministry of Finance against the tariff differential subsidy, based on the ministry’s own calculations.
The Ministry of Finance also endorsed the figures, maintaining that the budgeted subsidy exceeded the actual requirement calculated on the basis of electricity units supplied.
Officials further noted that power-sector circular debt could have declined by a greater amount if K-Electric had paid approximately Rs200 billion on time instead of withholding payments due to ongoing litigation.
The High Court and the appellate tribunal have reportedly upheld Nepra’s decision involving around Rs200 billion in savings for power companies, although K-Electric may still pursue further legal remedies.
Sources said the IMF staff was ultimately satisfied with the comparable figures and explanations provided by the Pakistani authorities.
The two sides are expected to finalise practical arrangements during policy-level discussions next week for shifting electricity subsidies for low-income consumers from subsidised tariffs to direct cash transfers through BISP.
Story by Khaleeq Kiani
