IMF urges Pakistan to ‘phase out fuel subsidy, limit future support’

The International Monetary Fund (IMF) has reiterated its call for Pakistan to phase out its fuel subsidy scheme, saying any future government support against rising oil prices should be targeted, time-bound, and accommodated within the current fiscal year’s budget.

An IMF spokesperson told Arab News on Saturday that the existing scheme should be discontinued because of its broad targeting, while any fresh relief should be restricted to those most in need.

Prime Minister Shehbaz Sharif had introduced a fuel subsidy scheme in September to shield lower-income motorists from rising petroleum prices amid the US-Iran war.

Under the revised arrangement, motorcycle, rickshaw and Qingqi users receive weekly petrol tokens worth Rs500, while owners of cars with engines up to 800cc get a discount of Rs100 per litre on up to 10 litres every 10 days.

The federal government initially announced a Rs100-per-litre subsidy for small vehicles before adjusting the mechanism for two- and three-wheelers. The initiative was aimed at cushioning the impact of rising fuel costs on lower-income households.

Last month, Petroleum Minister Ali Pervaiz Malik said that the government was spending between Rs35 billion and Rs40 billion monthly on the initiative and could continue it for up to 10 months if necessary. At the time, the scheme had attracted more than six million registrations.

The programme’s reach increased further in November, with Information Minister Attaullah Tarar reporting more than 15 million registrations and approximately Rs27 billion in relief provided under the initiative.

Meanwhile, Pakistan has witnessed consecutive reductions in petroleum prices this week. Petrol fell to Rs330 per litre on November 14, while high-speed diesel was reduced to Rs360 per litre.

“In the context of the current review, as stated in the Oct. 7 staff-level agreement, the fuel support scheme should be phased out, given its broad targeting,” an IMF spokesperson told Arab News.

“And any future fuel support — should oil prices surprise on the upside — be limited, time-bound, targeted using established social assistance programmes, and accommodated within the FY27 budget envelope,” he added.

The IMF had previously called for the subsidy scheme to be phased out, citing its high cost and broad targeting, and urged Pakistan to rely on targeted assistance for vulnerable households.

IMF warns of economic risks from Mideast conflict

The IMF spokesperson said Pakistan’s commitment under the $7 billion Extended Fund Facility (EFF) programme was to allow domestic petroleum prices to move in line with international rates while protecting the most vulnerable segments of the population.

Pakistan, like several other countries, increased petroleum prices following disruptions caused by the US-Iran war, which affected global energy supplies and shipping routes.

“The war in the Middle East remains a significant headwind for Pakistan, given its reliance on oil and gas imports from the Gulf countries,” the spokesperson said.

He added that higher international oil prices had already increased inflationary pressures in the country.

According to the Pakistan Bureau of Statistics (PBS), consumer inflation stood at 9.6% in October, compared with 10.3% in September.

“Sustained volatility could weigh on the economic outlook,” the IMF official warned.

The spokesperson said Pakistan should maintain macroeconomic stability and continue reforms aimed at strengthening public finances, improving competition, raising productivity and competitiveness, and bolstering social protection and human capital.

He also called for reforms in state-owned enterprises, improvements in public service delivery and measures to ensure the viability of the energy sector.

IMF board review expected next month

Last month, Pakistan and the IMF reached a staff-level agreement following discussions with government officials in Karachi and Islamabad. The agreement is awaiting approval from the Fund’s Executive Board.

Once approved, Pakistan is expected to receive around $1 billion under the EFF and another $210 million through the Resilience and Sustainability Facility (RSF), taking total disbursements to approximately $5.7 billion.

“The IMF Executive Board meeting on Pakistan’s EFF and RSF review, and the 2026 Article IV consultation is expected to take place in December, subject to the fulfilment of programme requirements,” the spokesperson said.

The IMF official did not specify the requirements that Pakistan must fulfil before the board meeting.