Govt to end fuel subsidies, raise BISP aid under IMF deal

ISLAMABAD (Mudassar Ali Rana) – The government has formally informed the International Monetary Fund (IMF) of its decision to withdraw subsidies on petroleum products, refrain from imposing Federal Excise Duty (FED) on fertilizers, and enhance financial assistance under the Benazir Income Support Programme (BISP) by Rs5,000.

According to official documents seen by Dunya News, Pakistan has committed to phasing out temporary and off-budget subsidies unless sufficient fiscal space becomes available. Instead, the government will focus on targeted subsidies aimed at low-income groups to ensure more efficient allocation of resources.

The staff-level agreement with the IMF highlights that fuel prices will be adjusted in line with global market trends, particularly amid regional tensions influencing international oil prices. Authorities assured the IMF that broad, costly subsidies would be avoided, and regular price revisions would reflect market realities.

Under the revised policy, the quarterly BISP stipend will increase from Rs14,500 to Rs19,500 starting January 2027. This step is intended to cushion vulnerable households against inflation and improve their purchasing power.

Sources said the IMF had expressed concerns over temporary and unbudgeted subsidies, prompting Pakistan’s economic team to clarify that such measures would only be adopted in exceptional circumstances. The government also outlined steps to reduce expenditures, including cuts in fuel allowances for official vehicles and a 20% reduction in non-salary spending during the final quarter of fiscal year 2026. These measures are expected to save Rs27 billion.

Out of these savings, Rs23 billion was used as a short-term subsidy to delay a fuel price increase for one week. However, officials emphasized that such relief measures will not continue in the future.

The government further assured the IMF that no additional FED would be imposed on the fertilizer and pesticide sectors to protect agriculture. On the revenue side, authorities noted that higher petroleum levy collections have significantly supported fiscal consolidation. With daily petroleum consumption estimated at 55 million liters, levies exceeding Rs105 per liter have strengthened revenues.

Officials project that total petroleum levy collections could surpass Rs1.6 trillion this fiscal year, exceeding the original target of Rs1.468 trillion. The additional revenue is expected to help offset tax collection shortfalls.

To strengthen social protection, the government plans to expand BISP coverage by adding 200,000 more families, raising the total number of beneficiaries to over 10.2 million by the end of fiscal year 2026. Additional initiatives include expanding education and health programs, along with launching a new skills development scheme in the upcoming budget.

The government also highlighted ongoing digital reforms, including the introduction of e-wallets for seven million beneficiary families to ensure transparent and efficient fund distribution. All remaining beneficiaries are expected to be integrated into the system by the end of the current fiscal year.