IMF reiterates call for Pakistan to phase out fuel subsidy scheme

The International Monetary Fund (IMF) has reiterated its call for Pakistan to phase out its fuel subsidy program, stressing that any future government support to deal with rising oil prices must be limited, temporary and within the framework of the current fiscal year’s budget.

An IMF spokesman told Arab News that existing fuel subsidy programs should be phased out because of their broad reach. If international oil prices unexpectedly rise, any further assistance should be directed to deserving groups through established social security programs and kept within the fiscal year 2027 budget, the spokesman said.

Pakistan launched a fuel subsidy program in September to protect low-income motorists from rising oil prices amid the US-Iran war. Under the program, motorcycle and rickshaw users get weekly petrol vouchers worth Rs 500 ($1.80), while owners of vehicles with an engine capacity of up to 800 cc get a discount of Rs 100 ($0.36) per liter, subject to a limit of 10 liters every 10 days.

The IMF had also called for an immediate end to the program in a statement last month, citing its high costs and wide coverage. Pakistan is trying to transition from economic stability to growth under the International Monetary Fund’s $7 billion Enhanced Funds Program (EFF). The spokesman said that under the plan, Pakistani authorities are committed to bringing domestic oil prices in line with international oil prices, while protecting the most vulnerable sections of society. Pakistan’s Finance Minister Mohammad Aurangzeb, Finance Minister Bilal Azhar Kayani and Finance Adviser Khurram Shehzad did not respond to Arab News’ requests for comment on the IMF’s latest position.

Like several other countries, Pakistan raised oil prices after the US-Israeli war on Iran that began in February. Petrol prices hit a record high of Rs 458.41 per liter on April 3, but gradually eased to Rs 330 per liter as tensions eased in the region.

great economic pressure

A representative of the International Monetary Fund said that the current conflict in the Middle East is a major challenge for Pakistan, which depends on oil and gas imports from the Persian Gulf countries. Disruption of international shipping routes, especially in the strategically important Strait of Hormuz following Iran’s blockade, has raised concerns about economic growth in developing countries, including Pakistan.

International Monetary Fund officials said rising international oil prices have added to domestic inflationary pressures. 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 strengthen social protection and human capital.

It also emphasized 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 after talks with officials in Karachi and Islamabad. The contract must be approved by the fund’s management. Once approved, Pakistan is expected to receive approximately $1 billion from the EFF program and an additional $210 million through the Resilience and Sustainability Fund (RSF), bringing the total expenditure of the two programs to approximately $5.7 billion.

An IMF spokesman said an executive meeting to review Pakistan’s EFF and RSF review and the 2026 Article IV consultation would be held in December, subject to program requirements.