Understanding with IMF: Pakistan to hike fuel levy above Rs100 per litre

ISLAMABAD: Pakistan will raise its Petroleum Development Levy (PDL) to over Rs100 per litre on petrol and diesel in coming fiscal year starting July 2025, under a new understanding with the International Monetary Fund (IMF) to fund power sector subsidies and help reduce circular debt, a senior official told The News on Monday.

The levy, currently stands at Rs78/liter on petrol and Rs77 on diesel, is being increased as part of Islamabad’s broader strategy to boost non-tax revenues and support power and electric vehicle subsidies. The plan is central to Pakistan’s commitment to tighten its fiscal position under the IMF’s Extended Fund Facility (EFF), a senior official told The News Monday.

The PDL has already seen a sharp increase since July 2024—from Rs60 to Rs80 per litre—yielding over Rs1 trillion in revenue in the first 10 months of outgoing FY25. The government had aimed in budget to collect Rs1.281 trillion through the levy by year-end.

As part of its climate-aligned fiscal reforms, Pakistan has also committed to introduce a Rs5 per litre carbon levy on petrol and diesel.

In the power sector, the government will remove a 10 percent cap on the Debt Service Surcharge (DSS) on power bills by end-June 2025. The move is expected to help reduce ballooning circular debt. To meet that goal, authorities have pledged regular tariff adjustments, fuel cost pass-throughs, and a new Circular Debt Management Plan to be approved by cabinet by July 2025.

Interestingly, all provinces have agreed not to introduce any new power or gas subsidies — bolstering efforts towards long-term fiscal and energy sector sustainability. The Fund has said, “Timely implementation of power tariff adjustments has helped reduce the stock and flow of circular debt.” Meanwhile, cost-side reforms are showing early signs of success but need to be accelerated to safeguard the energy sector’s viability and improve Pakistan’s competitiveness.”