Prime Minister Shehbaz Sharif’s announcement of a reduction in electricity prices is a significant step toward Pakistan’s economic revival, easing the financial burden on citizens and reviving the struggling industrial sector.
From 2021 through 2024, electricity prices in Pakistan surged by 155%, triggering nationwide protests as, in some instances, the tariffs even exceeded prevailing rental rates for homes. The pricing surge played a key role in steering the country’s inflation to a record 38% and prompted calls for a rethink of contracts with independent power producers, especially amidst an economic downturn.
Since the 1990s, Islamabad has persistently attempted to address chronic energy shortages by adding new power plants rather than addressing structural flaws such as theft and transmission losses. This process peaked a decade ago. In collaboration with China under the Belt and Road Initiative, the government expanded capacity by constructing a slew of coal, solar, and hydroelectric plants. Achieving this required agreeing to hefty capacity charges and taking on debt, repaying which required elevating electricity costs, especially as seasonal variations left the country with excess power in the winter.
The situation worsened in 2022, when then-prime minister Imran Khan announced a significant electricity subsidy aimed at providing immediate relief to consumers. Financially unsustainable, these subsidies placed additional strain on the national exchequer, draining foreign exchange reserves and contributing to a burgeoning circular debt. To prevent looming default, the government engaged with the International Monetary Fund, agreeing to implement tariff hikes as part of broader economic reforms. These increases led to public dissatisfaction, but were deemed necessary to achieve long-term economic health.
According to Sharif, the tariff reductions of Rs. 7.41/unit savings for domestic consumers and Rs. 7.59/unit for industries were made possible due to successful power sector reforms and economic stabilization. This could not have come at a better time.
A day earlier, U.S. President Donald Trump imposed 29% “reciprocal” tariffs on Pakistan, posing a significant challenge to the country’s export-driven industries, particularly textiles. By reducing electricity costs, the government effectively lowers production expenses for exporters, enhancing their competitiveness in international markets and helping to offset potential revenue losses stemming from these new trade barriers.
While laudable, however, the tariff reduction is merely a first step. The government cannot afford to rest on its laurels and must continue to navigate the complexities of energy pricing and implementing reforms that balance fiscal responsibility with consumer relief. These reductions must not only be sustained, but expanded to benefit domestic consumers and strategically position Pakistan’s industries to remain resilient and competitive on the global stage.