Rs1.079 Trillion Power Sector Subsidy Likely in FY2025-26 Budget

ISLAMABAD: The federal government is expected to allocate a power sector subsidy of Rs1.079 trillion (Rs1,079 billion) for the fiscal year 2025-26 budget, according to official reports. This potential allocation has been discussed in recent meetings between the government’s economic team and the International Monetary Fund (IMF) mission.

The Finance Division has updated the provisional Indicative Budget Ceilings (IDCs), revising the sector subsidy on account of the recurrent budget for FY2025-26 to Rs636.136 billion, a significant increase from the previously set Rs400 billion. However, it remains unclear whether the Power Division fully utilized the allocated subsidy for FY2024-25, as revised figures have not yet been disclosed.

Additionally, the Finance Division has directed the Power Division to strictly adhere to mandatory budgeting and planning procedures, including compliance with the Public Finance Management (PFM) Act, 2019 and other relevant financial guidelines. Budget estimates must reflect cost centres, green budgeting, climate KPIs, and gender metrics through performance-based planning.

Fiscal Constraints May Impact Final Allocation

The Finance Ministry emphasized that the power sector subsidy for FY2025-26 will be finalized based on available fiscal space. In a communication titled “MEFP for EFF 2024-27 – Circular Debt (CD) Target for FY2025-26,” the Power Division sought indicative allocations to manage the ongoing circular debt issue.

According to the Corporate Finance Wing of the Finance Division, any final allocations will be determined through the standard budgeting process, involving consultations with the Budget and CF Wings while considering existing fiscal limitations.

Meanwhile, a proposal by the Power Division to release an advance subsidy of Rs224 billion to address liquidity concerns was not approved. The Finance Ministry argued that Rs633 billion had already been allocated under multiple heads to meet the sector’s needs.

A draft summary for the release of advance funds was submitted to the Economic Coordination Committee (ECC) on March 25, 2025, but the ministry maintained that the current funding is sufficient and additional allocations would not be considered under austerity measures.