The federal cabinet on Sunday approved a proposal to end subsidies and increase the power tariff in line with prior actions required by the International Monetary Fund (IMF) to revive a stalled bailout program.
Last week, a mission from the global lender concluded policy-level talks with the Ministry of Finance but was unable to achieve a staff-level agreement, reportedly over fiscal measures that must be implemented prior to the signing of any deal. The IMF is set to continue virtual talks with Islamabad on these policy measures from today (Monday), with the government hoping the lender will release the next tranche of $1 billion within this month.
According to the plan approved by the cabinet—and to be presented to the IMF—the government would increase power tariffs by Rs. 7.91/unit in four quarterly phases, with the first to be implemented in February-March 2023. This would be followed by increases in March-May; June-August; and September-November. In the first phase, the tariff would be increased by Rs. 3.21/unit. Subsequently, it would be increased by Rs. 0.69/unit; then Rs. 1.64/unit and finally Rs. 1.98/unit. As a result, the price of electricity would jump from Rs. 15.28/unit at the end of June 2022 to Rs. 23.39/unit a year later.
The government’s plan also calls for an end to all subsidies, with Rs. 65 billion allocated for cheaper power to export-oriented industries being withdrawn. This includes a subsidy for farmers that was announced by Prime Minister Shehbaz Sharif last year.
The cabinet also approved a revised circular debt management plan.