ISLAMABAD: The Government of Pakistan has decided to allocate an additional Rs50 billion in subsidies to the power sector. According to reports, Rs159 billion in subsidies have already been disbursed during the current financial year. With the addition of Rs50 billion, the total allocation will surpass Rs209 billion.

In the first quarter, Rs128 billion was released for power sector subsidies, followed by Rs31 billion in the second quarter. The government aims to further strengthen the sector through the upcoming financial injection.

Official sources highlight that circular debt levels are considerably lower than the International Monetary Fund (IMF) target for December. By December 19, 2024, the circular debt flow had reached just Rs70 billion, well below the IMF’s target of Rs461 billion. The government attributes this success to improved efficiency and measures to reduce losses, expressing optimism about meeting the IMF’s benchmarks.

The World Bank recently reported a dramatic 400% rise in Pakistan’s power sector subsidies over the last five years, significantly straining the federal budget. Subsidies have escalated from Rs236 billion in the financial year 2020 to Rs1190 billion this year—a substantial increase of Rs954 billion.

The report cited the growing number of protected consumers, with 94% of domestic users benefiting from subsidies in 2024, as a key factor in the mounting fiscal burden.

Despite reforms, losses and poor electricity bill recovery remain critical challenges, contributing to circular debt averaging Rs400 billion annually over the past four years. The World Bank noted a total debt increase of Rs1241 billion over six years, with the total reaching Rs2393 billion as of 2024.

To mitigate this crisis, the World Bank urged Pakistan to implement urgent reforms addressing inefficiencies and the subsidy burden to stabilize the power sector.