Pakistan has promised the International Monetary Fund (IMF) to end all untargeted electricity subsidies for residential consumers as a condition of a new $1.2 billion climate loan.
Future subsidies will be delivered exclusively through the Benazir Income Support Programme (BISP), replacing the existing system of tariff differential payments to utility companies.
Finance Minister Muhammad Aurangzeb confirmed on Wednesday that the IMF executive board would approve the first $200 million tranche of the facility on Friday, 8 May.
The new policy will affect households consuming up to 300 units of electricity per month, a category that includes most lower- and middle-income residential consumers in Pakistan.
Many such households currently use multiple electricity meters to divide monthly consumption and avoid higher tariff rates that apply beyond the 300-unit threshold each month.
Subsidy reform and BISP transition
The government has committed to completing the shift from untargeted subsidies to BISP-based payments by January next year, subject to system readiness checks in August.
Ending the current subsidy model would free approximately 500 billion Pakistani rupees currently allocated to tariff differential payments for low-consumption and agricultural consumers.
To develop the payment mechanism for delivering targeted subsidies, the government plans to hire a specialised firm before the end of this month, official sources said.
Pakistan is also working with the World Bank (WB) to link electricity consumer records to the National Social and Economic Registry database of BISP for subsidy eligibility verification purposes.
BISP currently covers around 10 million registered families, compared with approximately 22 million total electricity consumers who use up to 300 units each month.
IMF conditions and climate commitments
The IMF has made subsidy reform a condition of its Resilience and Sustainability Facility, a $1.2 billion climate loan tied to Pakistan’s national climate change commitments.
The fund says the targeted subsidy approach will reduce over-consumption among higher-income households and ease pressure on industry for tariffs that are not cost-reflective.
Pakistan has already notified new regulations requiring minimum energy performance standards for public procurement as part of a separate condition under the same climate facility.
To qualify for the $200 million tranche, Pakistan issued guidelines for managing climate-related financial risks and new rules for listed companies to disclose climate-related risks.
Pakistan also committed to establishing a framework to coordinate federal and provincial disaster risk financing needs under the National Disaster Risk Financing Strategy being developed now.
Climate finance and public investment
Speaking at the Breathe Pakistan International Climate Change Conference, Minister Aurangzeb stressed the need for all government ministries to adopt a whole-of-government approach to climate.
He highlighted loans from the IMF, the World Bank, and the Asian Development Bank as key sources of existing financing available to Pakistan for climate-related investments.
The minister also reaffirmed plans to issue $250 million in Panda bonds this month to finance environment-friendly and health projects, a move announced earlier this year.
The government has committed to raising the climate weighting in public investment procedures to at least 30 percent for all new federal infrastructure projects going forward.
Authorities have also promised to publish selection criteria and project scores for new entries into the federal public sector development programme to improve transparency in spending.
As part of the broader lending conditions, Pakistan has assured the IMF it will begin digitally charging irrigation tax from farmers by August next year.
Pakistan’s climate vulnerability
Despite contributing minimally to global greenhouse gas emissions, Pakistan remains one of the world’s most climate-vulnerable nations, according to international climate risk assessments and indicators.
The catastrophic 2022 floods submerged one-third of the country, causing losses exceeding $30 billion, while severe flooding in 2025 again displaced millions across multiple provinces.
Minister Aurangzeb said Pakistan now had “very scientific data” on required climate actions, and pointed to AI-led early warning systems as evidence of improved disaster preparedness.
Pakistan signed the $1.2 billion RSF loan in exchange for commitments spanning water resilience, green investment, transport decarbonisation, and aligning energy reforms with national climate policy.
