ISLAMABAD: Virtual discussions are scheduled today between Pakistan and the International Monetary Fund (IMF) focusing on the fiscal year 2025–26 budget.
These talks are expected to address critical financial issues, particularly the circular debt in Pakistan’s gas sector, which has accumulated to approximately Rs 2800 billion.
Pakistani officials plan to present a comprehensive strategy aimed at resolving this debt over a five-year period.
Tackling Gas Sector Circular Debt
One of the main topics on the agenda is the gas sector’s circular debt, with officials preparing to share detailed data on the financial performance of gas companies, including profits, losses, cash flow, and balance sheets.
The IMF has requested this information as part of its ongoing assessment. A plan involving dividends and phased reduction of the circular debt is expected to be discussed in depth.
This effort aims to stabilize the energy sector’s finances and support broader economic reforms.
Additionally, the IMF is pressing for a robust approach to eliminating circular debt by the end of FY2026.
This includes negotiations with Independent Power Producers (IPPs) to reduce the debt burden by Rs 348 billion. The government is also expected to explain its proposed measures for managing subsidies and tariff adjustments, which have been points of contention in previous discussions.
Challenges in Budget Negotiations
Last week’s budget talks between Pakistan and the IMF ended without a final agreement, primarily due to disagreements over relief measures proposed by the Pakistani government.
The IMF opposed additional power subsidies to domestic consumers and the proposed reduction of electricity tariffs for industrial users. Instead, the Fund insisted on timely tariff increases during the next fiscal year to maintain fiscal discipline.
The Federal Board of Revenue (FBR) has requested a downward revision of its revenue target from Rs 14.307 trillion to a range between Rs 14.05 trillion and Rs 14.1 trillion.
While the IMF showed some flexibility on this front, it expressed serious concerns about rising government expenditures. The Fund warned that exceeding spending limits could jeopardize Pakistan’s ability to achieve a primary balance surplus, a critical condition of the ongoing IMF loan program.
