IMF Warns Against Gas Price Reduction in Pakistan

The International Monetary Fund has cautioned the Pakistani government against reducing gas prices, warning that such a move could exacerbate the gas sector's circular debt. This warning came during the IMF's evaluations of Pakistan's Extended Fund Facility and Standby Arrangement. In response to these concerns, the government amended the Oil and Gas Regulatory Authority Ordinance in March 2022 to curtail its authority to lower tariffs.

The government has also pledged to synchronize consumer gas prices with OGRA's determinations. In Pakistan, the gas sector functions differently from the power sector; it relies on a cross-subsidy mechanism where higher tariffs for certain consumer groups help protect vulnerable residential users. OGRA determines wellhead gas prices and the revenue requirements of Sui gas companies twice annually.

Previously, the federal government had 40 days to respond to OGRA's determinations before updating consumer prices. However, this practice was halted after the fiscal year 2013. This lapse played a role in the accumulation of tariff disparities, partly due to the unauthorized diversion of re-gasified liquefied natural gas to the domestic market without a proper mechanism to recover its full cost.

As of June 30, 2025, Pakistan's gas sector circular debt amounted to Rs. 3,288 billion, including Rs. 1,468 billion in interest costs. Under the IMF program, Pakistan agreed to define circular debt precisely, assess its stock, implement monthly reporting, and formulate a circular debt management strategy. This strategy includes periodic adjustments to end-user gas prices based on set formulas, alongside efforts to reduce costs and curb unaccounted-for gas losses.

The World Bank has supported the Petroleum Division in creating a definition of circular debt and a reporting system. The growing circular debt is also impacting state-owned exploration and production companies, such as Oil and Gas Development Company, Pakistan Petroleum, and Government Holdings Private Limited. Lower bill collections by these companies, combined with challenges in the power sector, have led to increased receivables and diminished financial capacity for exploration and production investments.

The government has independently developed a petroleum sector reform plan that outlines a five-year plan to settle Rs. 1,493 billion in circular debt. This proposal was submitted to the Prime Minister in December 2025.