IMF Praises Pakistan's Oil Crisis Handling, Presses for Faster Gas Sector Reforms
IMF Praises Pakistan’s Oil Crisis Handling, Presses for Faster Gas Sector Reforms
The International Monetary Fund has appreciated Pakistan’s handling of the oil crisis through six months of the US-Iran conflict, noting the country avoided supply disruptions and any added burden on the budget. At the same time, the Fund has asked Islamabad to move faster on the gas sector circular debt, now around Rs3.6 trillion, and on shifting to targeted subsidies for the poorest consumers.
A visiting IMF staff mission reviewed Pakistan’s energy finances this week, Dawn reported. The message was two-sided: praise for how the oil shock was handled, and pressure on the gas side.
What the IMF wants on the gas sector circular debt
The gas sector circular debt stands at roughly Rs3.6 trillion: about Rs1.8 trillion in principal payables and a similar amount in accumulated interest and late payment surcharges.
The Fund wants faster groundwork on two fronts: bringing the debt under control, and directing gas subsidies to consumers below the poverty line instead of spreading them across tariff slabs. Initial talks on moving subsidies to direct cash transfers through the Benazir Income Support Programme concluded that the “gas sector is far from ready given data and ownership-related challenges”.
One idea, a uniform gas tariff linked to Ogra’s average prescribed price of around Rs1,700 per mmBtu, was seen as premature for now. The Petroleum Division, led by Minister Ali Pervaiz Malik, has been pushing for uniform rates in line with Ogra’s advice, since the real cost of supply is Rs1,700 to Rs1,750 per mmBtu. Uniform rates would cover costs, cut cross-subsidies paid by industry, and slow the debt’s growth. A separate proposal to raise the petroleum levy by a couple of rupees to fund part of the debt did not find favour and was not taken up with the Fund.
Why targeted subsidies are hard to deliver
The protected category for domestic consumers, with gas prices of Rs200 to Rs350 per mmBtu, widened the gap between the cost of gas and what consumers pay, adding to the circular debt. Only four of the 12 consumer slabs covered the cost of supply during winter.
Gas-meter ownership records remain unreliable in many cases. Consumers often avoid reporting ownership changes for decades to dodge fresh security deposits, which makes it hard to identify poor households from meter data. The problem is worse in the commercial sector, where titles stay unchanged while shops change hands on “pagri”.
The IMF staff is not yet convinced the groundwork is workable, though the Fund has long insisted on targeted gas subsidies. It advised further work with consultants on a mechanism that can function over the longer term.
Power sector wins rare praise
The Fund acknowledged that Pakistan managed petroleum prices without an extra budget burden or product shortages, noting some regional countries had faced shortages, added fiscal costs, or both.
The IMF had questioned a Rs65 to Rs70 billion rise in the power-sector circular debt, which stood at Rs1.675 trillion at end-June 2026. But it accepted the sector had “overperformed” on bill recoveries and loss reduction, and that the increase came from around Rs95 billion in lower Finance Ministry disbursements on the tariff differential subsidy.
Power-sector debt could have fallen further had K-Electric paid around Rs200 billion on time instead of holding it up through litigation. Courts have upheld Nepra’s decision on around Rs200 billion in savings to power companies, though KE can pursue further legal remedies.
The two sides are expected to finalise plans during policy-level talks next week on paying subsidies directly in cash to poor power consumers through BISP, replacing subsidised tariffs.
Frequently asked questions
How large is Pakistan’s gas sector circular debt?
Around Rs3.6 trillion: about Rs1.8 trillion in principal payables and a similar amount in accrued interest and late payment surcharges.
Why does the IMF want targeted gas subsidies?
Blanket subsidies across tariff slabs widen the gap between the cost of gas and what consumers pay, which keeps adding to the circular debt. The Fund wants support directed to consumers below the poverty line.
What did the IMF say about the power sector?
It acknowledged the sector “overperformed” on bill recoveries and loss reduction, and agreed the recent rise in its circular debt was driven by lower Finance Ministry disbursements on the tariff differential subsidy.
