Pakistan, IMF weigh BISP route for gas, electricity subsidies

October 02, 2026 (MLN): Pakistan and the International Monetary Fund (IMF) talks have centred on overhauling energy subsidies, with both sides weighing a shift from tariff-based relief to direct cash support for poor households as a way to stop circular debt from growing further.

Gas-sector circular debt now stands at about Rs3.6tr, and the Fund has voiced unease over how fast it is piling up.

According to the officials familiar with the matter,  the lender wants subsidies aimed squarely at the needy, and the two sides explored paying gas subsidies straight to eligible households through the Benazir Income Support Programme (BISP).

Pakistani authorities cautioned that the gas sector lacks the data and clear ownership arrangements needed to run a fully targeted system for now.

A parallel conversation on moving electricity subsidies from lower tariffs to BISP transfers is already in progress.

Of the Rs3.6tr gas-sector stock, roughly Rs1.8tr is principal, while the balance is made up of interest and late-payment surcharges, the officials said.

Tariff changes pitched as debt control

Islamabad told the Fund that its gas tariff revisions are meant to bring the debt under control.

The Petroleum Division maintained that cheaper rates for protected consumers have pushed regulated prices well below the actual cost of delivering gas, widening the shortfall.

Officials said the two sides also looked at scaling back cross-subsidies and moving toward pricing that tracks supply costs more closely. The government had earlier sketched a multiyear plan to work down the Rs3.6tr burden.

The IMF mission also gave Pakistan credit for keeping petroleum products flowing through the recent regional turmoil, the officials said.

They noted that no shortages emerged despite the disruption, and that the federal budget was not asked to bear any extra cost to keep supplies steady.

The Fund has repeatedly urged Pakistan to steer clear of across-the-board energy subsidies and to strengthen the sector's finances.

Questions on power-sector build-up

On the electricity side, the IMF sought an explanation for a Rs65-70bn increase in circular debt, which was about Rs1.675tr as of end-June 2026, per the briefing.

Pakistani officials replied that the sector beat programme targets on bill recoveries and on cutting transmission and distribution losses.

They put part of the rise down to the tariff differential subsidy, saying about Rs95bn less than required was disbursed, and pointed to a roughly Rs200bn payment that K-Electric delayed.

The IMF, after going through comparable figures, was content with the power-sector debt position, the officials added.

Cash transfers for power consumers next

Further talks are expected on replacing subsidised electricity tariffs with direct payments to low-income households.

Under the idea, eligible families would receive aid via BISP rather than enjoying artificially reduced rates, a design meant to keep welfare spending separate from energy pricing, remove market distortions and help rein in circular debt.

The mechanics, including how beneficiaries will be identified and how money will reach them, are to be settled in policy-level negotiations.

The subject forms part of the ongoing IMF review, which covers reforms to make the power and gas sectors financially sustainable and prevent fresh debt accumulation.

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