Finance Minister Muhammad Aurangzeb has withdrawn his earlier proposal to impose a 10% surcharge on electricity bills. This reversal surprised many, especially since Pakistan had assured the IMF that the surcharge would help manage circular debt repayments. The announcement came just a day after Aurangzeb suggested the surcharge during his budget speech.
Aurangzeb clarified that the surcharge was originally part of the Power Division’s plan but the government no longer intends to implement it. He emphasized that the government is focused on converting expensive credit into cheaper loans to handle the circular debt problem. He also said there will be no surcharge on electricity bills.
He further revealed that the government secured Rs1.3 trillion in bank loans to address the power sector debt. Aurangzeb added that power sector recoveries have improved, but transmission losses still need attention. As a result, subsidies in the power sector are expected to decrease to Rs1.036 trillion in FY26 from Rs1.19 trillion.
However, an IMF staff report from May 17 stated Pakistan committed to passing a law by June 2025 to lift the surcharge cap. This would allow Pakistan to raise Rs1.252 trillion through surcharge revenues over six years. These funds are planned to repay loans and arrears linked to the power sector.
If surcharge revenues fall short, the IMF report said the government must increase the surcharge to meet repayment goals. The finance minister’s recent statement contradicts this commitment, raising questions about Pakistan’s future energy sector reforms and its agreement with the IMF.