IMF Blocks Gas Price Reduction, Citing Concerns Over Circular Debt

The International Monetary Fund (IMF) has expressed opposition to reducing gas prices in Pakistan, citing concerns that it would lead to an increase in circular debt. The IMF made this stance clear in a recent meeting with the Cabinet Committee on Energy (CCOE). According to the IMF, downward revisions in gas prices would exacerbate the existing tariff differential, which is a significant contributor to the accumulation of circular debt.

The IMF has been monitoring the situation closely and has requested amendments to the Ogra Ordinance 2002 to limit the government's powers to revise tariffs. The amendments were made in March 2022, and as per the agreement, prices would be revised in accordance with Ogra determinations to avoid further accumulation of circular debt.

The gas sector in Pakistan operates under a cross-subsidy mechanism to protect vulnerable segments in the domestic (residential) sector. However, this has inflated tariffs for other consumer categories, making it challenging for public gas utilities to lower tariffs for industrial, commercial, or compressed natural gas (CNG) consumers.

The circular debt in the gas sector stood at Rs3,288 billion as of June 30, 2025, with an interest cost of Rs1,468 billion. The government has agreed to take steps to address the issue, including devising a precise definition of circular debt, compiling detailed statistics, establishing a monthly debt flow reporting system, and implementing reforms to reduce unaccounted-for-gas (UFG) losses.