Pakistan’s economy is like a runner on a treadmill whose pace is controlled by the International Monetary Fund’s (IMF) conditions. With each bailout, the treadmill speeds up, and our poor runner sweats blood in the form of reduced subsidies, indirect tax hikes, and tariff increases. The real question does not circle around the speed of the treadmill; it now focuses on how to get off.

Unfortunately, Pakistan’s economic landscape epitomises contradictions. Our country’s economic policies have evolved over time, myopically focusing on short-term solutions that mainly cater to debt servicing rather than fostering sustainable revenue generation that strengthens the Gross National Product.

Instead of creating a win-win situation for businesses and the government, Pakistan remains trapped in a self-defeating cycle where businesses are forced to absorb costs, making them less competitive and reducing their output.

The power sector has proved to be the most worrisome; its policies are riddled with contradictions. Whilst electricity prices have been reduced by Rs2.12 per unit for consumers of government-owned distribution companies (Discos) and Rs3 per unit for K-Electric consumers, the government continues to discourage the adoption of solar energy. The contradiction lies in lowering the buyback rate at which surplus electricity is produced from Rs27 per unit to around Rs10 per unit.

Pakistan must shift its focus away from excessive electricity tariffs, toward sustainable revenue generation, industrial expansion, and investment-driven growth

Although the prime minister has announced an Rs8 per unit deduction in tariffs, it remains subject to IMF approval. Even if this reduction materialises, bringing the average tariff from Rs35 to Rs27 per unit, solar users would still be forced to buy at a 170 per cent higher rate from the national grid than what they will be paid for.

At the industrial level, the government has recently raised gas tariffs for captive power plants (CPPs) by 23pc while imposing a new grid levy of Rs791 per million British thermal units (mmBtu), exercising powers conferred by sub-section (1) of section 3 of the Off Grid (Captive Power Plants) Levy Ordinance, 2025 (I of 2025) as explained by Petroleum Secretary Momin Agha.

This move will force factories to move to the national grid from self-generation, overburdening them over time as this grid levy will be raised by 10pc in July 2025, 15pc in February 2026, and another 20pc in August 2026, pushing industrial gas prices up to Rs6,000 per mmBtu.

Pakistan’s electricity rates are already almost double those of China, India and the United States as per the latest International Energy Agency report. Industrial electricity rates in Pakistan remain significantly higher than regional competitors, ranging from Rs31.85 to Rs44.46 per unit, while industrial rates in India and Bangladesh are as low as Rs8-12 per unit.

This disparity discourages manufacturing investment and pushes industries toward decline or relocation. Instead of encouraging industrial autonomy and lowering costs to attract more businesses, the government is penalising industries for seeking efficiency and reducing reliance on the broken power sector. Whilst such a move would ensure that the government meets its revenue targets, will forcing residential and business consumers to a much less efficient national grid help in the long term?

The circular debt brings new contradictions. Every year, the government borrows to pay off circular debt, tacitly ignoring why the debt accumulates in the first place — costly independent power producer (IPP) contracts, high transmission losses (around 17pc), and inefficiencies in Discos.

Lately, the government has been working on securing a Rs1.25 trillion loan from commercial banks, potentially at a 7-7.5pc interest rate, to pay off circular debt, as reported by the Business Recorder. This move comes despite the government securing Rs300 billion in late payment interest waivers, unveiling chronic mismanagement.

Instead of addressing structural inefficiencies, the government is simply shifting the financial burden of circular debt onto consumers through a debt servicing surcharge of Rs2.83 per unit to finance the Rs1.25tr loan. As always, it is the common man who has to bear the brunt of these inefficiencies.

Despite these measures, the combined circular debt remains close to Rs5tr, including the power, gas and petroleum sectors. As domestic debt piles up, inflationary pressures increase.

The issue of privatisation is another area that is in troubled waters. Nearly two decades after KE’s privatisation, Karachi still suffers from seven- to 10-hour daily load shedding, with some areas facing outages up to 18 hours, as the Special Committee of the Sindh Assembly was recently informed.

Unlocking IMF loan tranches cannot remain the primary goal; Pakistan must shift its focus away from excessive electricity tariffs and toward sustainable revenue generation, industrial expansion, and investment-driven growth.

The writer is an economist and educationist based in Lahore.

Published in Dawn, The Business and Finance Weekly, March 24th, 2025