IMF Praises Pakistan’s Oil Crisis Handling, Pushes Faster Gas Reforms

The International Monetary Fund has reportedly welcomed Pakistan’s handling of the recent oil-market crisis while urging the government to accelerate reforms in the gas sector, where circular debt has climbed to around Rs3.6 trillion.

According to people familiar with discussions between Pakistan and the visiting IMF mission, the Fund acknowledged that authorities managed months of regional oil-market disruption without widespread fuel shortages or creating a major additional burden on the federal budget.

At the same time, IMF officials are pressing Pakistan to improve the targeting of gas subsidies, strengthen consumer data and develop a credible plan for dealing with the gas sector’s growing stock of unpaid obligations.

The discussions come as Pakistan continues implementing reforms under its IMF-supported Extended Fund Facility and Resilience and Sustainability Facility programmes.

IMF Reportedly Praises Pakistan’s Handling of Oil Shock

The IMF mission reportedly noted that Pakistan managed the latest period of oil-market volatility without the kind of fuel-supply disruptions or large fiscal subsidies seen in some other countries in the region.

Pakistan continued adjusting domestic fuel prices broadly in response to international market conditions rather than freezing prices for an extended period through government subsidies.

That approach is consistent with Pakistan’s existing IMF commitments.

The IMF’s published programme documents require the government to keep domestic fuel prices broadly aligned with international prices through regular adjustments and avoid creating new fuel subsidies or cross-subsidy schemes.

The Fund has previously argued that allowing international energy-price changes to pass through to domestic prices helps protect the federal budget and reduces the risk of new fiscal liabilities.

Oil Crisis Tested Pakistan’s Energy Policy

Pakistan faced significant pressure from volatile international energy prices during the wider Middle East conflict.

Earlier IMF programme documents noted that the global energy shock forced Pakistan to take emergency measures while maintaining fiscal discipline.

The government initially created temporary fiscal room through expenditure reductions and other savings but subsequently returned to regular fuel-price adjustments rather than maintaining an open-ended subsidy.

For Pakistan, this is particularly important because the country remains heavily dependent on imported petroleum and gas.

A sharp increase in global energy prices can affect:

• The import bill
• Foreign-exchange reserves
• Petrol and diesel prices
• Electricity-generation costs
• Inflation
• Government subsidies

Avoiding an unfunded fuel subsidy therefore reduces one potential source of pressure on the federal budget.

Gas Sector Now the Bigger Concern

While the IMF reportedly expressed satisfaction with the handling of petroleum supplies and prices, the gas sector remains a much more complicated problem.

Dawn reports that Pakistan’s total gas-sector circular debt has reached approximately Rs3.6 trillion.

Around Rs1.8 trillion represents principal liabilities, while roughly another Rs1.8 trillion consists of accumulated interest and late-payment charges.

The IMF had already identified the problem earlier this year.

Its April 2026 Pakistan staff report estimated total gas circular debt at Rs3.4 trillion as of December 2025, equivalent to around 2.7% of GDP at the time.

The increase to about Rs3.6 trillion indicates that the overall stock is still growing even though the government says it has largely stopped new principal debt from accumulating.

What Is Gas Circular Debt?

Circular debt develops when companies within the energy supply chain are unable to fully collect the money they are owed.

For example, a gas utility may sell gas to customers but receive less revenue than required to cover:

• The cost of gas
• Imported LNG
• Distribution expenses
• Infrastructure
• Financing charges
• Payments to upstream suppliers

If the shortfall is not compensated through tariffs, efficiency improvements or budget support, unpaid obligations begin accumulating across the energy chain.

Over time, those unpaid bills generate additional financing costs and late-payment charges.

That is why circular debt can keep growing even when the government manages to stop the creation of large amounts of new principal debt.

Government Says Fresh Gas Debt Flow Has Been Curbed

The Petroleum Division said in January 2026 that reforms had stopped the creation of fresh gas-sector circular debt.

Petroleum Minister Ali Pervaiz Malik said the government had improved gas-system management while reducing unaccounted-for gas losses at the two major distribution companies.

SNGPL reportedly reduced UFG losses from around 9% to 5%, while SSGC reduced them from around 17% to 10%.

However, stopping new debt from accumulating is different from eliminating the existing stock.

The IMF has repeatedly stressed that Pakistan still needs a comprehensive plan for dealing with legacy liabilities.

IMF Wants Gas Tariffs to Cover Costs

A central issue is the difference between what it costs to supply gas and what different consumer groups actually pay.

The Petroleum Division has been advocating greater alignment between consumer tariffs and the average prescribed cost of gas.

According to Dawn, the current average prescribed price determined by the Oil and Gas Regulatory Authority is around Rs1,700 to Rs1,750 per million British thermal units.

Older OGRA data also show prescribed prices for the major utilities around this general level before more recent adjustments.

Pakistan currently uses multiple consumer slabs.

Some low-income residential consumers pay much less than the average supply cost, while higher-income households, commercial users and industries may pay significantly more.

This creates a system of cross-subsidisation.

IMF Wants Subsidies Better Targeted

The IMF is not calling for the immediate removal of all protection for low-income gas consumers.

Instead, its broader approach is to replace broad tariff subsidies with targeted support for households that genuinely need assistance.

The Fund’s published programme documents repeatedly say power and gas tariffs should remain progressive while vulnerable consumers receive targeted protection.

Pakistan is already working on a similar reform in the electricity sector.

Under the IMF programme, the existing electricity tariff-differential subsidy and cross-subsidy system is supposed to move toward a targeted framework using the Benazir Income Support Programme and National Socio-Economic Registry.

Officials are considering whether a comparable structure could eventually be introduced for natural gas.

Why Gas Subsidy Reform Is More Difficult

The main problem is data.

Dawn reports that discussions with the IMF have highlighted weaknesses in identifying who actually owns or occupies many properties connected to gas meters.

Gas accounts can remain under the names of previous property owners for decades.

In commercial properties, the situation can be even more complicated when businesses change ownership while utility records remain unchanged.

That makes it difficult to reliably link a particular gas connection with a household’s poverty status in the BISP or National Socio-Economic Registry database.

Without accurate consumer identification, replacing subsidised tariffs with direct cash payments could create serious targeting problems.

Gas Reform Is Behind the Power Sector

Pakistan’s electricity sector has made greater progress in matching customers with socioeconomic data.

Under the existing IMF programme, the government and development partners are linking electricity consumers with the National Socio-Economic Registry to determine eligibility for targeted subsidies.

The gas sector is much less prepared.

That is why the IMF reportedly believes an immediate move to a fully uniform gas tariff combined with cash transfers would be premature.

More work is needed on:

• Meter ownership records
• Consumer identification
• Household income data
• Property records
• BISP integration
• Subsidy payment systems

Until those systems improve, Pakistan may have to retain some form of tariff-based protection for lower-income gas consumers.

Rs1,700 Uniform Gas Rate Is Not Ready Yet

The Petroleum Division has considered moving toward a uniform tariff linked more closely to the average prescribed gas price.

That would reduce cross-subsidisation and make consumers pay a rate more closely aligned with the actual cost of supply.

However, IMF discussions reportedly concluded that the underlying data systems are not yet reliable enough to make an immediate transition workable.

This does not mean the idea has been abandoned.

Rather, officials may need to spend more time building a system capable of identifying vulnerable consumers before removing existing subsidised tariff slabs.

Why Cheap Gas Can Increase Circular Debt

Pakistan currently maintains heavily discounted gas rates for certain protected domestic users.

Dawn reports that some protected households pay around Rs200 to Rs350 per mmBtu, far below the average cost of gas.

The difference must ultimately be financed either by:

• Higher tariffs charged to other consumers
• Government subsidies
• Utility losses
• Delayed payments within the energy chain

If none of these sources fully covers the gap, circular debt increases.

This is why the IMF generally prefers direct support for poor households instead of selling energy below cost to large consumer categories.

Petroleum Levy Proposal Has Not Advanced

The Petroleum Division reportedly considered increasing the petroleum development levy by a small amount to help finance part of the gas-sector circular debt.

According to Dawn, the idea involved raising the levy by roughly a couple of rupees.

However, the proposal did not receive sufficient support within the government and therefore was not formally presented to the IMF.

That leaves the government searching for other ways to deal with the Rs3.6 trillion debt stock.

Simply transferring the liability to taxpayers would reduce the visible debt in the gas companies but would not eliminate the underlying fiscal cost.

The IMF has generally pushed Pakistan toward structural solutions that prevent new liabilities from re-emerging.

Power Sector Performs Better Than Expected

The IMF mission also reportedly reviewed Pakistan’s power-sector circular debt.

The stock stood at approximately Rs1.675 trillion at the end of June 2026, according to figures discussed with the Fund.

Initially, the IMF questioned an increase of roughly Rs65 billion to Rs70 billion.

However, the Fund was reportedly told that the increase did not primarily result from weaker electricity-company performance.

Instead, approximately Rs95 billion in expected tariff-differential subsidy payments from the Finance Ministry were not disbursed because the calculated subsidy requirement turned out lower than the amount originally budgeted.

IMF Acknowledges Better Power Recoveries

The IMF reportedly accepted that the power sector had actually performed better than its agreed efficiency targets in some areas.

These included:

• Bill recovery
• Distribution losses
• Operational efficiency

The existing IMF programme has made reduction of power-sector losses and circular debt a central requirement.

The government is expected to maintain cost-recovery tariffs while improving the operational performance of electricity distribution companies.

Better collections reduce the amount of electricity supplied but never paid for, while lower transmission and distribution losses mean more generated electricity ultimately produces revenue.

Both are essential to preventing circular debt from returning.

K-Electric Payments Are Also Part of the Dispute

Dawn reports that officials told the IMF that the power-sector debt stock could have declined further if approximately Rs200 billion connected with K-Electric payments had been settled.

The amount remains tied up in legal proceedings.

Courts and regulatory tribunals have reportedly upheld certain Nepra decisions that would produce savings for power companies, although K-Electric retains legal avenues for further appeal.

Because the matter remains subject to litigation, the eventual financial outcome is not yet final.

Electricity Subsidies May Move to Direct Cash Payments

Pakistan and the IMF are expected to continue policy-level discussions on replacing electricity tariff subsidies with targeted cash support.

Under the IMF programme, the government has already committed to developing a system in which low-income electricity consumers are identified through the BISP-linked National Socio-Economic Registry.

Instead of paying artificially low electricity tariffs, eligible households could receive direct financial assistance.

The intended advantages are:

• Better targeting
• Lower fiscal leakage
• Reduced cross-subsidies
• Greater transparency
• Less incentive for excessive consumption
• Improved energy-sector cost recovery

The challenge will be ensuring vulnerable households are properly identified and compensated before subsidy structures are changed.

Why the IMF Prefers Direct Cash Support

Broad energy subsidies are expensive because they often benefit households that do not need government assistance.

For example, if electricity or gas prices are subsidised for every customer below a particular usage level, some wealthier households may also qualify.

Direct cash transfers allow governments to target assistance according to income or poverty status instead.

The IMF argues that this approach protects vulnerable families while allowing energy tariffs to better reflect the actual cost of supply.

Pakistan has already built a large social-protection infrastructure through BISP, which makes this type of reform more feasible in electricity than in natural gas.

IMF Has Long Warned About Pakistan’s Energy Sector

The current discussions are not a new policy direction.

Pakistan’s IMF programme has repeatedly identified the energy sector as one of the economy’s largest structural weaknesses.

The Fund’s April 2026 report states that maintaining energy-sector viability requires:

• Timely tariff adjustments
• Cost recovery
• Reduced circular debt
• Lower unaccounted-for gas losses
• Better infrastructure
• Improved energy planning
• Targeted protection for vulnerable consumers

The IMF has warned that if higher global energy costs are not reflected in domestic prices, unpaid liabilities can build up again and create pressure for additional government subsidies.

Gas Circular Debt Has Risen Despite Reforms

The increase from approximately Rs3.4 trillion in December 2025 to around Rs3.6 trillion now illustrates the scale of the challenge.

The government has made progress in preventing fresh principal debt from growing rapidly, but accumulated financing costs continue adding to the total liability.

This is why solving circular debt requires more than simply raising gas tariffs.

Pakistan also needs to address:

• Unaccounted-for gas
• Theft
• Old pipeline infrastructure
• Revenue collection
• LNG costs
• Inefficient consumption
• Legacy debt financing
• Poor consumer databases

Without structural reforms, raising tariffs alone may provide only temporary relief.

What Happens Next?

Pakistan and the IMF are expected to move into policy-level discussions as the current mission continues.

The main energy-sector issues likely to remain on the agenda include:

• Gas circular debt
• Gas subsidy reform
• Consumer-data improvements
• BISP-linked energy support
• Power-sector subsidies
• Electricity circular debt
• Distribution-company performance
• Cost-reflective tariffs

A formal IMF statement at the end of the mission will provide a clearer official assessment of Pakistan’s programme performance.

Until then, the Fund’s reported praise for Pakistan’s oil-crisis management should be attributed to sources familiar with the discussions rather than treated as language from a published IMF communiqué.

Bottom Line

The IMF has reportedly praised Pakistan for managing the recent oil crisis without major fuel shortages or a significant new burden on the federal budget, while simultaneously urging faster reforms in the gas sector.

The most serious problem is the gas sector’s circular debt, which has reportedly risen to around Rs3.6 trillion, compared with Rs3.4 trillion recorded by the IMF at the end of December 2025.

The Fund continues to favour cost-reflective energy prices combined with targeted assistance for vulnerable households rather than broad tariff subsidies.

Pakistan has made more progress toward that model in electricity, where work is underway to link poor consumers with BISP and the National Socio-Economic Registry.

The gas sector remains further behind because incomplete meter-ownership and consumer data make it difficult to identify which households should receive direct support.

The next phase of IMF discussions is therefore likely to focus less on whether Pakistan should reform energy subsidies and more on how the country can build a workable system that protects low-income consumers without allowing circular debt to keep growing.