IMF presses Pakistan to phase out fuel subsidies as 1.21 billion dollars in programme funding awaits December board approval
The International Monetary Fund on Saturday reiterated that Pakistan should phase out the fuel subsidy scheme it introduced in September, stressing that any future government support, should oil prices rise further, must be limited, time-bound, targeted using established social assistance programmes and accommodated within the fiscal year 2027 budget envelope. The scheme gives motorcycle and rickshaw users a weekly petrol token worth 500 rupees, about 1.80 dollars, while owners of cars with engines up to 800cc receive a discount of 100 rupees, about 36 cents, per litre on up to 10 litres every ten days. In its October 7 staff-level agreement with the government, the Fund had explicitly called for the scheme's prompt phasing out, citing its high cost and broad targeting. Finance Minister Muhammad Aurangzeb, State Minister for Finance Bilal Azhar Kayani and Finance Adviser Khurram Schehzad did not respond to requests for comment on the Fund's position.
War-driven prices and inflation
Like several countries, Pakistan was compelled to raise fuel prices after the outbreak of the United States-Iran war in February; petrol hit a record 458.41 rupees a litre, about 1.66 dollars, on April 3 before gradually easing to 330 rupees as tensions receded. The Fund noted that, under the seven billion dollar Extended Fund Facility programme supporting Pakistan's move from stabilisation towards growth, the authorities had committed to letting domestic fuel prices move in line with international rates while cushioning the most vulnerable. It warned that the Middle East war remains a significant headwind given Pakistan's reliance on oil and gas imports from Gulf countries, that higher oil prices had already intensified domestic inflationary pressures - consumer prices rose 9.6 percent in October, down from 10.3 percent a month earlier - and that sustained volatility could weigh on the economic outlook. The war and disruption around the Strait of Hormuz have threatened shipping routes and the outlook for import-dependent developing economies.
The Fund said Islamabad's policy priorities should remain macroeconomic stability and reforms to strengthen public finances, enhance competition, raise productivity and competitiveness, and bolster the social safety net and human capital, alongside reforms in state-owned enterprises, improved public service delivery and a more viable energy sector. Last month's staff-level agreement awaits Executive Board approval; the board meeting on the programme review and the 2026 Article IV consultation is expected in December, subject to fulfilment of programme requirements. On approval, Pakistan would receive about one billion dollars under the main facility and 210 million dollars under the Resilience and Sustainability Facility, taking total disbursements under the programmes to approximately 5.7 billion dollars.