IMF Conditions on Electricity Subsidy
The International Monetary Fund (IMF) has imposed three new restrictions on Pakistan following the Punjab government’s decision to provide a Rs14 per unit electricity subsidy for two months.
According to reports, the IMF has demanded that the interim subsidies be terminated by September 30th.
Furthermore, it has been stated that no provincial government would be able to implement new energy or gas subsidies throughout the 37-month Extended Fund Facility (EFF) program.
This new stipulation calls into question Punjab’s Rs700 billion proposal to supply solar panels to users who use up to 500 units of power each month.
The subsidy plan approved in August, targeting consumers using 201 to 500 units of electricity, has now increased pressure on the government’s negotiations with the IMF.
The IMF has mandated that all provincial governments refrain from implementing any policies that could undermine the commitments made under the $7 billion program.
This condition could potentially limit provincial fiscal autonomy, particularly in areas such as agricultural income tax, property tax, and sales tax on services.
Another condition requires that provinces consult with the Finance Ministry before making any fiscal decisions that could affect the structural benchmarks agreed upon with the IMF.
The IMF’s heightened scrutiny over provincial budgets, particularly those of Punjab and Sindh, comes as the federal government struggles to secure approval for the $7 billion loan program.