Pakistan’s subsidized power plan for crypto mining rejected by IMF

A plan announced by Pakistan to supply electricity at preferential rates for crypto mining has been blocked by the International Monetary Fund (IMF), sources say, raising concerns about developing-world development policies at a time of global economic uncertainty.

Speaking to the Senate’s energy committee, Pakistan Power Secretary Fakhre Alam Irfan indicated that the IMF forbade a marginal-cost tariff (MCT) proposal which would have let Bitcoin mining operations pay far cheaper than other big industries. The move by the IMF surfaced in reports published by the Independent Urdu news outlet.

Although Pakistan faces intermittent power deficits otherwise, too much energy generation capacity comes online during winter months, especially hydropower, leading to curtailment. The proposed MCT, pegged at PKR 22-23 ($0.08) per kilowatt hour for crypto and other high-energy businesses, aimed to incentivise greater usage of excess power generation capacity. According to Irfan, the scheme now awaits re-assessment by multilateral development banks, including the World Bank.

The IMF cited precedents globally where targeted energy subsidies created economic imbalances. The finance ministry introduced tax breaks for AI centres and no duties on Bitcoin extraction alongside the power deal – which promoters linked to a notable cryptocurrency adoption pitch.

Source: Cointelegraph illustration

Government sources previously stated plans to transform up to 2,000 megawatts (MW) of “runoff” energy capacity towards crypto mining centers and investment-friendly infrastructure parks. Finance Minister Aurangzeb announced tax break plans for AI centers and duty-free Bitcoin mining earlier this year.

There were several attempts by Islamabad to prepare itself for mining capacity. Federal Minister for IT Saqib Nisar previously proposed tapping the nation’s extra energy capacity, particularly from hydropower plants, for Bitcoin extraction during periods when consumption drops, including winter. The concept was discussed at length by relevant bodies, including the Pakistan Crypto Council and support from the central bank governor.

Why the policy push is a necessity? Explained

Pakistan, hit by two sharp economic crises in a decade, with one still hitting hard this year according to the IMF, needs energy and financial reforms. The push came at a time when the Federal Government was looking to attract long-term foreign investment in the digital assets and AI sectors.

Back in March, Crypto Council chair Saqib Nisar told reporters that his goal was to build up international financial assets using local surplus electricity and an upcoming national Bitcoin fund.

Consulting crypto firm Strategy.io’s Mike Saylor sent a September letter amplifying the prospect, while Nisar mentioned in June that he had “discussions with Mike Saylor…who is very good in helping other countries,” according to an early March post. Nothing official from Saylor’s team.

However, the IMF’s refusal noted needed policy coordination – a standard clause in aid programs involving developing countries. Whether Islamabad will adjust the proposal to suit IMF demands remains unclear. Meanwhile, Pakistan continues to struggle with its power sector and its economy facing pressure from high debt levels, political instability and the war in Ukraine.