IMF reiterates call for Pakistan to phase out fuel subsidy scheme

An IMF spokesperson existing fuel support programme should be phased out because of its broad targeting. The spokesperson said any future assistance, if international oil prices rise unexpectedly, should be directed towards deserving groups through established social protection programmes and remain within the FY27 budgetary limits.

Pakistan introduced the fuel subsidy scheme in September to protect low-income motorists from rising petroleum prices amid the US-Iran war.

Under the programme, motorcycle and rickshaw users receive weekly petrol vouchers worth Rs500 ($1.80), while owners of vehicles with engine capacities of up to 800cc get a discount of Rs100 ($0.36) per litre on a maximum of 10 litres every 10 days.

The IMF had also called for the programme to be phased out promptly in a statement last month, citing its high cost and broad coverage. Pakistan is pursuing a transition from economic stabilisation towards growth under the IMF's $7 billion Extended Fund Facility (EFF) programme.

The spokesperson said Pakistani authorities had committed under the programme to align domestic petroleum prices with international rates while protecting the most vulnerable segments of society. Pakistan's Finance Minister Muhammad Aurangzeb, State Minister for Finance Bilal Azhar Kayani and Finance Adviser Khurram Schehzad did not respond to Arab News' requests for comments on the IMF's latest position.

Like several other countries, Pakistan increased petroleum prices following the US-Israel war on Iran, which began in February. Petrol prices reached a record Rs458.41 per litre on April 3 before gradually declining to Rs330 per litre as regional tensions eased.

Significant economic presssures. The IMF spokesperson described the ongoing Middle East conflict as a significant challenge for Pakistan because of its dependence on oil and gas imports from Gulf countries. Disruptions to international shipping routes, particularly through the strategically important Strait of Hormuz following Iran's blockade, have raised concerns about economic growth in developing countries, including Pakistan.

The IMF official said higher international oil prices had already added to domestic inflationary pressures. Statistics, consumer prices increased by 9.6% in October, compared with 10.3% in the preceding month. The spokesperson warned that continued volatility in global markets could affect Pakistan's economic outlook.

The IMF said Pakistan's policy priorities should focus on maintaining macroeconomic stability and implementing reforms to strengthen public finances, improve competition, increase productivity and competitiveness, and reinforce social protection and human capital. It also stressed the need for reforms in state-owned enterprises, improved public service delivery and greater viability of the energy sector.

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

Following approval, Pakistan is expected to receive approximately $1 billion under the EFF programme and another $210 million through the Resilience and Sustainability Facility (RSF), bringing total disbursements under the two programmes to around $5.7 billion.

The IMF spokesperson said the Executive Board meeting to consider Pakistan's EFF and RSF reviews, along with the 2026 Article IV consultation, was expected to take place in December, subject to the fulfilment of programme requirements.