Historically, the annual ritual of Pakistan’s federal budget announcement has remained marked by jargon-heavy speeches, figures that few understand, and promises that rarely materialise. For years, budgeting under an IMF program followed a predictable, if flawed, template: inflate revenues, understate expenditures, and meet the fiscal deficit target agreed with the IMF, at least in papers. However, for the last few years, things have been slightly different. How, before coming to that, let me explain why?
In the past, Pakistan repeatedly breached its commitments under IMF programs, often prioritising political expediency over fiscal prudence. These violations eroded trust between the Fund and Pakistani authorities, prompting the IMF to shift towards “front-loaded” disbursements, tying even the release of initial tranches to demonstrated implementation of agreed commitments. A case in point: outgoing federal budget figures were publicly contested by the IMF and had to be revised even before being debated in Parliament.
This year, the matters are complicated. Pakistan will be simultaneously implementing two IMF programs: the conventional Extended Fund Facility (EFF) (Pakistan secured its second tranche of $1.1 billion in May 2025) focused on macroeconomic stabilisation, and a $1.4 billion Resilience and Sustainability Facility (RSF), a climate-focused initiative providing concessional financing for disaster preparedness, water management, and renewable energy.
[Budget FY26: Between IMF imperatives and national priorities]
While the medium-term goals of both programmes are broadly aligned, challenges arise in the short term. The RSF encourages a shift towards clean energy, particularly solar power in our case. However, the EFF insists on curbing unsustainable subsidies and recovering ballooning capacity payments to Independent Power Producers (IPPs). These capacity charges, which have reached Rs 2.1 trillion, are fixed payments that the government is obligated to pay regardless of electricity consumption. Both asks of the IMF are valid.
Nevertheless, this leads to a paradox: promoting off-grid solar solutions, which are increasingly preferred by upper-middle-income earners and affluent consumers, further reduces demand from the national grid, exacerbating the per-unit cost for those who cannot afford solar alternatives. In response, there are murmurs of discouraging net metering and even taxing solar panels, which could disincentivise renewables and contradict climate goals.
In extreme case scenarios, those who can afford it will install solar panels with storage batteries, reducing their reliance on "grid electricity", putting the government in an even tighter bind. As wealthier households transition to self-sufficient, off-grid energy solutions, the government not only loses high-paying electricity consumers who help subsidise the grid but also forfeits potential tax revenue from their usage. Meanwhile, the burden of financing capacity payments and maintaining transmission infrastructure increasingly falls on lower- and middle-income users who remain grid-dependent. This could deepen energy poverty, increase public resentment, and lead to political unrest around energy pricing.
Unless carefully managed, the divergence between IMF’s fiscal discipline and climate commitments could lead to policy incoherence, undermining both budgetary targets and Pakistan’s broader transition to sustainable energy.
© 2026 SDPI. All Rights Reserved Design & Developed by NKMIS WEB Unit
