Solar energy transition under IMF conditionality: Distributive justice and energy policy imperative in Pakistan

Abstract

Despite Pakistan's long-enduring chronic energy crisis, a recent surge in solar generation supplied nearly 25 % of the national electricity grid in the first quarter of 2025, broadening access and easing cost pressures. Conversely, IMF conditionality under IMF financing programs, such as tariff rebasing and a 10 % sales tax on solar imports, risk undermining these distributive gains. This study examines the interaction between solar adoption, IMF credit, and household electricity prices in shaping energy justice, using annual data from 2007 to 2024. We capture direct, mediated, and dynamic effects using time-series analysis and causal mediation models, respectively. Results show that a 1 % increase in solar generation reduces injustice by 0.142 points ( p < 0.01), with benefits most substantial in rural areas. Mediation analysis demonstrates that IMF credit alleviates injustice only when channeled through solar adoption ( β = 0.251 → SE; Sobel z = −2.47), while tariff hikes directly worsen inequality ( β = −0.399, p < 0.05) but partially induce adoption. VAR evidence reveals that price shocks immediately intensify injustice, whereas solar shocks reduce disparities gradually. Results conclude that solar energy holds great promise, but cannot single-handedly drive a just transition. Achieving equitable outcomes requires addressing policy barriers by removing regressive fiscal measures, safeguarding net-metering, dedicating IMF resources to decentralized solar projects in marginalized communities, and broadening targeted subsidies for low-income populations. A failure to implement such measures could render Pakistan's solar expansion exclusive, thereby widening inequality. • Solar deployment substantially reduces distributive energy injustice in Pakistan, with a 1 % rise in solar output lowering injustice by 0.142 points. • IMF credit enhances distributive energy justice only when directed toward solar investment. • Household electricity prices drive energy injustice: tariff hikes intensify inequality but spur limited, inequitable solar adoption. • Price shocks incur immediate and enduring distributive costs, whereas the equity benefits of solar adoption accrue gradually. • Achieving an equitable transition requires embedding distributive justice in fiscal and financing frameworks.