The International Monetary Fund is discussing proposed electricity tariff revisions with Pakistan authorities, the fund said in a statement to Reuters on Saturday, adding that the burden of the revisions should not fall on middle‑ or lower‑income households.

“The ongoing discussions with the authorities will assess whether the proposed tariff revisions are consistent with these commitments and evaluate their potential impact on macroeconomic stability, including inflation,” it said in its statement.

The federal government announced a proposed tariff overhaul that analysts said would lift inflation while easing pressure on industry, as it seeks to meet conditions under its $7 billion Extended Fund Facility (EFF) ahead of another review of the programme.

The EFF is a longer‑term IMF loan programme designed to help countries address deep‑seated economic weaknesses and medium‑term balance‑of‑payments problems.

Electricity carries significant weight in the consumer price index, making tariff adjustments highly sensitive at a time when inflation, though sharply lower than its near-40% peak in 2023, remains a key political and economic pressure point.

The power sector has long been weighed down by circular debt — a chain of unpaid bills and subsidies that accumulates across generation companies, distributors, and the government — prompting repeated tariff increases under IMF-backed reforms since 2023.

The accumulation of power sector circular debt has been contained within programme targets, supported by improved performance on recoveries and loss prevention, the Fund added.

Hard on households, helpful to industries

The plan, ending a system where businesses subsidised household energy bills, could trigger a 1.1 percentage point jump in inflation over 12 months, analysts at Optimus Capital Management said.

Analysts say the plan, which only needs formal approval to come into effect, will cause industrial prices to fall between 13% and 15% and remove 102 billion ($365 million) rupees in subsidies.

That means middle-class households will have to pay roughly 50% more for power, the analysts estimated.

Inflation backdrop

The country endured one of Asia’s highest inflation spikes in 2023, nearing 40%, driven by a weakening rupee, rising fuel costs and price hikes linked to IMF-backed reforms.

Although inflation has since slowed to 5.8%, analysts warn the changes to power prices could add inflationary pressure.

The power ministry and the IMF did not respond to a request for comment.

Ahtasam Ahmad, Energy Finance Program Lead at consultancy Renewables First, said that because purchasing power for the average household had significantly declined, the change “adds to the compounding effect of inflation which we have experienced post-2022.”

The pricing overhaul underscores tensions within Pakistan’s IMF programme, which has mandated steep utility price hikes since 2023 to support struggling state power firms.

Industrial groups say high prices erode export competitiveness in textiles and manufacturing.

Consumers using between 100 and 300 units of power monthly – representing a majority of paying residential users – will face rate increases of up to 76% due to new fixed charges under the pricing overhaul, according to Arzachel, a Karachi-based energy consultancy.

The lowest-income households using 1-100 units monthly will see fixed charges jump to Rs400 from zero, the National Electric Power Regulatory Authority (NEPRA) said on Monday.

Solar pricing in question

The regulator has also cut the rate paid to rooftop solar users exporting power to the grid, replacing a system that previously valued supplied and purchased electricity equally.

A record surge in solar installations has cut emissions and lowered bills for some households, but squeezed revenues at debt-laden utilities as demand for grid power declines.

Prime Minister Shehbaz Sharif on Wednesday ordered a review of NEPRA’s solar changes, directing officials to prevent a transfer of costs from 466,000 solar users to 37.6 million grid consumers.

“Excessively high fixed charges risk driving consumers toward full grid defection, undermining long-term system stability,” Arzachel said in a note on Tuesday.