The IMF Executive Board approved Pakistan's 37-month Extended Fund Facility on 25 September 2024: SDR 5,320 million, about USD 7 billion and 262 per cent of quota, with SDR 760 million released immediately. By our arithmetic the first tranche is 14.3 per cent of the total, which leaves most of the money tied to reviews. Energy will decide many of those reviews.
The staff report, dated 11 September, sets out the starting position plainly. Power-sector circular debt stood at PRs 2,794 billion, or 2.6 per cent of GDP, at end-March 2024. Gas-sector arrears stood at PRs 2,083 billion, 2.0 per cent of GDP, at end-January. Taken together that is PRs 4,877 billion of energy arrears, about 4.6 per cent of GDP.
Prices first
The government's commitments start with tariffs. The FY25 annual rebasing was notified in full on 14 July 2024, and NEPRA is to keep notifying quarterly adjustments and monthly fuel cost adjustments automatically. Gas tariffs are to be adjusted every six months, including the cost of imported RLNG. Provinces have agreed not to introduce their own electricity or gas subsidies.
The FY25 budget carries PRs 1,229 billion in power subsidies, 1.0 per cent of GDP. The staff report breaks it down: PRs 663 billion for the tariff differential, PRs 174 billion for FATA and K-Electric arrears, PRs 10 billion for agricultural tubewells, PRs 24 billion for Power Holding principal and PRs 358 billion for arrears to power producers. On our calculation 54 per cent of the subsidy simply keeps tariffs where they are, and about 31 per cent (382 of 1,229) goes to reducing the debt stock. That is a holding operation.
Costs second
The cost side is where the programme is thinner. The structural benchmark is to complete the policy work to prepare two DISCOs for private participation by end-January 2025, with requests for proposals for a first concession by end-May 2025 and a first privatisation by end-September 2025. The government says it plans to privatise or concession nine DISCOs in total. Captive gas use is to end by end-January 2025.
On generation, the staff note that capacity payments account for about 60 per cent of generation costs, and the government commits to settle up to PRs 263 billion of arrears to IPPs and government power producers on revised PPA terms. The language on reducing capacity payments is conditional: it depends on budget space.
Our view
We think the programme is right about the order of operations and too cautious on the cost side. Tariffs can be raised quickly by notification. Distribution losses, recovery shortfalls and capacity contracts cannot, and the benchmarks for them are deadlines for paperwork. None sets a target for losses or collections. A DISCO transaction "prepared" by January 2025 can still be years from changing how a feeder in Peshawar or Hyderabad is run.
The gas side deserves more attention than it is getting. Gas arrears are three-quarters the size of power arrears and have no subsidy line of comparable size. If the captive transition succeeds, industrial users leave the gas network and the remaining cross-subsidy burden falls on fewer customers.
The first review will show whether quarterly power adjustments are being notified on time. That is the easiest test in the programme. The staff report itself lists tariffs failing to keep pace with costs as a historical driver of circular debt, alongside weak DISCO management, under-collection and poor maintenance of the transmission and distribution network.