The government’s commitment to the International Monetary Fund (IMF) to phase out untargeted residential electricity subsidies from next year and replace them with a targeted assistance system through the Benazir Income Support Programme (BISP) is facing political sensitivity, even though it is increasingly viewed as economically unavoidable.
One of the key reasons for ending broad-based subsidies is that high electricity tariffs have encouraged widespread system manipulation. Some households, particularly those able to afford it, reportedly install multiple meters to split consumption and stay below the subsidised limit of 200 units. This has turned a relief mechanism intended for lower-middle-income families into a pricing distortion that can be exploited.
Under the agreement with the IMF, subsidies are expected to shift toward income-based targeting using the National Socio-Economic Registry. This change is not only a condition of external financing but also reflects fiscal constraints, as the government struggles to sustain large-scale subsidies while the power sector continues to face circular debt, inefficiencies, electricity theft, and revenue shortfalls.
The current subsidy structure also creates broader economic pressures. To keep residential tariffs low for eligible consumption slabs, higher costs are effectively transferred to industrial users. This raises production costs, affects export competitiveness, and limits job creation.
While targeted subsidies are expected to improve the efficiency of public spending and ensure support reaches those most in need, the transition is likely to have significant social impacts.
A large segment of the population—those who are not classified as poor but still face financial strain due to stagnant incomes, inflation, and rising utility bills—may be particularly affected. For many such households, the removal of subsidised electricity could further reduce already limited disposable income.
As a result, some families may be forced to cut back on electricity usage and other essential expenses, including basic cooling needs during extreme summer conditions.
There are also concerns about public perception and fairness. While ordinary consumers may face higher costs, certain groups within state institutions and the public sector continue to benefit from heavily subsidised or free electricity. This disparity could contribute to public dissatisfaction and reduce confidence in reform efforts.
Overall, while the policy shift is driven by fiscal necessity, it carries notable political and social challenges that could intensify as implementation moves forward.