IMF blocks electricity price cuts in Pakistan, increasing burdens

The International Monetary Fund (IMF) has reportedly prevented the Pakistani government from significantly reducing retail electricity prices. This decision came just before the Prime Minister was set to announce the cuts on Pakistan Day. As a result, many consumers, especially those from low to middle-income households, missed out on a promised relief of Rs8 per unit of electricity. Instead, they now face an increased petroleum levy of Rs10 per liter. During a recent review of a $7 billion loan from the IMF, the government proposed a minor reduction of Rs2 per unit for electricity tariffs. This reduction was meant to come from savings made by revising contracts with certain independent power producers (IPPs). However, to manage the funding for these tariffs, the government raised the petroleum levy to a maximum of Rs70. The IMF's approval processes show the increasing reliance of Pakistan on foreign loans, often due to years of poor policy decisions and corruption. This oversight by the IMF is seen by some as intrusive, potentially limiting Pakistan's sovereignty. However, given the historical pattern of self-serving policy choices by local elites, such oversight may be viewed as a needed compromise. The IMF's decision also halted proposed cuts to federal transaction taxes on real estate, a move the government wanted to implement to appease influential property developers. Electricity prices in Pakistan have soared by over 150% since 2021. The high costs are attributed to various issues, including inefficiencies in power distribution, theft, corruption, and a heavy reliance on imported fuels. While the government's intention to reduce power prices is recognized, experts argue that simply shifting financial burdens is not a sustainable solution. Long-term fixes must address the underlying problems in the power sector rather than opting for quick fixes that serve immediate political interests.