Cash Through BISP, Debt Through Islamabad: What the IMF Review Can and Cannot Fix in Power Subsidies

Next week's policy round of the IMF review is expected to settle a reform that Pakistan has discussed for years: replacing tariff-based electricity subsidies for poor households with direct cash transfers through the Benazir Income Support Programme. According to Business Recorder and Dawn, both sides expect to finalise the practical modalities, including how eligible consumers are identified and how money reaches them. The same reports say the gas sector, where a similar shift has been explored, is "far from ready".

Moving social protection out of the tariff and into BISP is the cleanest way to stop cross-subsidies from distorting what every other consumer pays. Dawn reports that the IMF initially questioned an increase of Rs65 to 70 billion in power-sector circular debt, which stood at Rs1.675 trillion at the end of June 2026. Energy Update, reporting the Power Division's briefing to the Fund, puts the increase at Rs61 billion. First, the power sector "overperformed" on its efficiency targets, including bill recoveries and loss reduction, according to Dawn's sources.

Put plainly, distribution companies did better than planned on the variables they control, and debt still rose because of a budget line and a single counterparty. Dawn and Business Recorder both report that electricity consumer documentation is considerably more advanced than gas, despite the power network's larger customer base. The gas numbers make the case for reform urgent but not for rushing it. Dawn puts gas-sector circular debt at around Rs3.6 trillion, roughly Rs1.8 trillion of principal and a similar amount of accrued interest and late payment surcharges.

Use the power-sector BISP mechanism as the pilot, publish its targeting error rates after the first billing cycles, and build the gas database in parallel, starting with domestic meters where ownership can be verified through existing BISP and NADRA records. Three issues raised in this round are larger than the subsidy design and will decide whether the power sector's financial position actually improves. The government has told the Fund it plans to recover more than Rs110 billion in provincial electricity dues by deducting them from provincial shares under the NFC Award, with around Rs50 billion targeted in the near term, according to Energy Update.

Energy Update reports that Pakistani officials did not give a definitive answer on whether the uniform national tariff would survive the privatisation of distribution companies. The way to protect it is to keep the BISP reform honest about its scope.