The International Monetary Fund (IMF) is not wrong to say that Pakistan’s power sector subsidy regime needs reform. Any serious policy practitioner knows that the present tariff structure is fiscally expensive, administratively weak, and vulnerable to misuse. But the IMF is wrong in how it has framed the problem, sequenced the solution, and identified the culprit.
Under the Resilience and Sustainability Facility, the government has committed to replacing the budgeted electricity tariff differential subsidy and cross-subsidy system with a targeted subsidy framework for low-income consumers, to be disbursed through the Benazir Income Support Programme (BISP) by the end of January 2027. On paper, this sounds neat. In practice, it risks becoming another exercise where the poor are asked to pay for the sins of the power sector’s political economy.
Firstly, the IMF’s core assumption is analytically weak. It argues that better-targeted subsidies will reduce incentives for higher-income consumers to overconsume electricity. But Pakistan’s protected consumer category is not an overconsumption subsidy. It is a volumetric survival threshold. Consumers with fewer than 200 units are not being encouraged to consume more; they are being forced to consume less.
A household that watches its meter like a patient watches blood pressure, avoids using fans excessively in June, delays ironing clothes, limits refrigeration, and fears crossing the 200-unit line is not overconsuming electricity. It is under-consuming modern energy in a climate-stressed country.
Electricity misuse should be addressed through targeted administrative correction, not blunt subsidy removal.
Secondly, there is no publicly available distributional analysis showing who will lose, who will gain, and by how much once tariff-based subsidies are replaced by BISP-linked transfers.
Electricity poverty is not identical to income poverty. A household may be poor but excluded from BISP. A tenant may pay the bill while the meter is registered in the landlord’s name. A joint family may consume more than 200 units because eight people live under one roof, not because they are affluent. A household with elderly patients, students, or heat-exposed workers may require more electricity than its poverty score suggests. A reform that ignores these realities will look clean in a spreadsheet but cruel on the ground.
Thirdly, yes, there is misuse in the present system. Multiple meter installations are used in some cases to artificially split consumption and remain within protected slabs. This is a genuine governance problem. But misuse should be addressed through targeted administrative correction, not blunt subsidy removal.
The government should use CNIC mapping, premise-level verification, geographic information system tagging, power distribution company audits, smart metering for abnormal consumption patterns, and a “one protected connection per genuine household” principle with due process.
Fourthly, the IMF’s claim that subsidy removal will reduce theft is also questionable. Theft is not primarily a subsidy problem; it is a governance problem. It is linked to weak enforcement, political protection, poor metering, high-loss feeders, and distrust between consumers and distribution companies.
If tariffs rise sharply for vulnerable households while cash transfers are delayed, inadequate, or poorly targeted, the incentive for theft may actually increase. The system may end up producing exactly what it claims to prevent.
Fifthly, the industrial tariff argument deserves more honesty. It is true that cross-subsidies have burdened industry and hurt competitiveness. Pakistan cannot build exports on electricity tariffs that punish production. But the solution is not to remove household protection and merely hope that industrial tariffs will fall.
The government must transparently show how much industry will benefit, which sectors will gain, whether employment will rise, and whether export competitiveness will improve. Otherwise, subsidy removal becomes another policy ritual in which pain is immediate, benefits are promised, and accountability disappears into the fog.
Sixthly, the IMF is silent on the real elephants in the power sector: Independent Power Producers, capacity payments, underutilised plants, expensive contracts, imported fuel exposure, and poor planning. Pakistan’s power purchase cost is increasingly dominated by fixed capacity payments rather than actual energy consumed.
In plain terms, consumers are not only paying for electricity; they are paying for plants that often sit idle. This is the architecture of unaffordable power. Blaming protected consumers for the crisis is like blaming the dinner guest for the mortgage on the banquet hall.
Seventhly, real reform must begin on the cost side. Pakistan needs a transparent audit of generation contracts, capacity obligations, fuel indexation, plant utilisation, dispatch constraints, and transmission bottlenecks. It must renegotiate where possible, refinance where feasible, and retire or repurpose where necessary.
Imported coal and inefficient thermal assets should be considered for early retirement through climate finance, debt reprofiling, and carbon-credit mechanisms. A coal-to-clean strategy can reduce emissions, lower future capacity burdens, protect workers, and convert stranded liabilities into transition assets. If a climate-linked IMF facility cannot support such structural reform, then one may reasonably ask: what exactly is climate finance for?
The verdict is straightforward. Pakistan does need subsidy reform, but not blind subsidy removal. Reform must be evidence-based, distributionally tested, administratively realistic, and socially protective.
The 200-unit consumer is not the villain of Pakistan’s power sector. The real villains are expensive capacity, rigid contracts, weak governance, high losses, and delayed reform. The IMF must stop chasing ants while elephants roam freely in the power room.
The writer has a doctorate in energy economics and serves as a Research Fellow at the Sustainable Development Policy Institute.
Email: khalidwaleed@sdpi.org
X: @Khalidwaleed_
Published in Dawn, The Business and Finance Weekly, May 18th, 2026
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