The International Monetary Fund (IMF) has set 2031 as the deadline for Pakistan to eliminate the power sector’s circular debt, while demanding that the government ensure zero annual inflow of debt each fiscal year, sources said on Wednesday.

During the ongoing review talks, officials briefed the IMF delegation that Islamabad has drawn up a 3- to 6-year roadmap to gradually wipe out the power sector’s debt.

They informed that following a Rs1.2 trillion debt arrangement with banks, the circular debt has been trimmed to around Rs400 billion.

As part of reforms, the government has also decided to raise the transition levy on captive power plants.

The levy will first be raised to 10%, and from January 2026 it will be increased further to 15%. According to sources, the government expects to collect Rs105 billion in the current fiscal year from off-grid captive power plants under this levy.

In addition, annual tariff rebasing will begin on January 1, 2026.

The IMF delegation was also briefed on the severe economic toll of last year’s devastating floods, which caused an estimated Rs370 billion in damages.

Officials warned that as a result, GDP growth for the current fiscal year could fall to 3.9% against earlier targets.

According to the sources, the IMF review mission assessed that Pakistan will require external financing of $26 billion during the current fiscal year to meet its obligations.

While acknowledging progress on reforms, the IMF stressed the need for strict adherence to fiscal discipline, structural adjustments, and resilience measures to ensure debt sustainability and economic stability in the medium term.