- IMF says the current fuel subsidy scheme should be phased out because it is not targeted enough.
- Any future relief must be temporary, targeted and kept within the FY2026-27 budget.
- Inflation eased to 9.6% in October from 10.3% in September.
- The IMF Executive Board is expected to review Pakistan's programmes in December.
The International Monetary Fund has renewed its call for Pakistan to gradually end its fuel subsidy programme. It says any future relief tied to oil prices must be limited, targeted and time-bound.
In this article
An IMF spokesperson said the existing fuel subsidy should be phased out because it does not adequately reach the most deserving groups. The Fund had already urged its withdrawal last month, pointing to its high cost and wide coverage.
In short, the Fund wants broad support under the fuel subsidy to give way to narrower help. Any new support linked to oil prices should be limited, time-bound and funded within the FY2026-27 budget.
What the IMF wants on the fuel subsidy
The spokesperson said Pakistan had been asked to accommodate any additional assistance within the FY2026-27 budget. Support, the Fund said, should mainly go to low-income households through established social protection programmes.
The IMF said it had sought the withdrawal of the fuel subsidy under the staff-level agreement reached on October 7. It argued that the current programme relies on a broad targeting mechanism.
The spokesperson added that Pakistan has committed to aligning domestic petroleum prices with international market rates. At the same time, the Fund said the government must keep protecting the country's most vulnerable households.
| Beneficiaries | Support | Limit |
|---|---|---|
| Motorcycle and rickshaw users | Petrol voucher worth Rs500 | Weekly |
| Owners of vehicles up to 800cc | Rs100 per litre discount | Maximum 10 litres every 10 days |
How the current fuel subsidy scheme works
Pakistan introduced the fuel subsidy in September to shield low-income motorists from higher petroleum costs. Motorcycle and rickshaw users receive weekly petrol vouchers, while owners of smaller vehicles get a per-litre discount.
Motorcycle and rickshaw users get a Rs500 petrol voucher every week. Owners of vehicles up to 800cc receive a Rs100 per litre discount, limited to a maximum of 10 litres every 10 days. The IMF argues that this design relies on a broad targeting mechanism, which is why it wants the fuel subsidy wound down.
Timeline
- FebruaryWar on Iran begins
- SeptemberPakistan introduces fuel subsidy for low-income motorists
- April 3Petrol reaches a record Rs458.41 per litre before later easing to Rs330
- October 7IMF and Pakistan reach a staff-level agreement
- DecemberIMF Executive Board expected to review Pakistan's programmes and the 2026 Article IV consultation
Fuel subsidy explained: why targeting matters
The central issue is targeting. The IMF says the current fuel subsidy does not adequately reach the most deserving groups, and it points to the programme's high cost and wide coverage. For that reason, the Fund argues the scheme should be gradually wound down rather than continued in its present form.
The Fund does not say vulnerable households should be left unprotected. It says any new support linked to oil prices should be limited, targeted and time-bound, and that help should mainly go to low-income households through established social protection programmes. Pakistan has also been asked to accommodate any additional assistance within the FY2026-27 budget.
To sum up, the IMF's position on the fuel subsidy has three parts: phase out the current scheme, keep any new relief limited and time-bound, and fund it within the FY2026-27 budget.
Oil shock and inflation
The IMF spokesperson described the conflict in the Middle East as a major challenge for Pakistan, which relies heavily on Gulf states for oil and gas imports. Pakistan raised fuel prices after the war on Iran that began in February. Petrol hit a record Rs458.41 per litre on April 3 before easing to Rs330 as regional tensions cooled.
Disruption to global shipping routes, particularly the Strait of Hormuz after Iran's blockade, has added to economic concerns. The IMF warned that prolonged uncertainty could hurt developing economies, Pakistan among them.
Higher oil prices have also fed domestic inflation. Consumer inflation stood at 9.6% in October, down from 10.3% in September, according to Pakistan Bureau of Statistics data. The spokesperson cautioned that continued volatility in oil prices could affect the country's economic outlook.
These pressures form the backdrop to the IMF's call to phase out the fuel subsidy and keep any new relief targeted.
Reforms and funding ahead
The Fund urged Pakistan to maintain macroeconomic stability while strengthening public finances and productivity. Its other priorities include stronger competition, better social protection, improved public services and reform of state-owned enterprises. It also stressed the need to make the energy sector financially sustainable.
Pakistan is implementing recovery measures under the IMF's $7 billion Extended Fund Facility. Once the Executive Board approves the staff-level agreement, the country expects about $1 billion under that programme and a further $210 million through the Resilience and Sustainability Facility. Total funding under both programmes would then reach roughly $5.7 billion.
The IMF Executive Board is expected to review Pakistan's programmes and the 2026 Article IV consultation in December. The meeting remains subject to the completion of outstanding programme requirements.
Questions and answers
What has the IMF asked Pakistan to do on the fuel subsidy?
It has asked Pakistan to gradually phase out the current scheme. Any future fuel support should be temporary, targeted and accommodated within the FY2026-27 budget.
Who benefits from the present fuel subsidy scheme?
Motorcycle and rickshaw users receive Rs500 petrol vouchers every week. Owners of vehicles up to 800cc get a Rs100 per-litre discount on up to 10 litres every 10 days.
Why does the IMF want the fuel subsidy phased out?
The Fund says the scheme does not adequately reach the most deserving groups and points to its high cost and wide coverage. It also says the programme relies on a broad targeting mechanism.
Who should receive any new support?
The IMF says support should mainly go to low-income households through established social protection programmes. Any new help should be limited, targeted and time-bound.
What is Pakistan's latest inflation figure?
Consumer inflation was 9.6% in October, down from 10.3% in September, according to Pakistan Bureau of Statistics data.
How much funding does Pakistan expect from the IMF?
Once the Executive Board approves the staff-level agreement, Pakistan expects about $1 billion under the Extended Fund Facility and a further $210 million through the Resilience and Sustainability Facility. Total funding under both programmes would then reach roughly $5.7 billion.
When will the IMF board consider Pakistan's programmes?
The Executive Board is expected to meet in December. That is subject to Pakistan completing outstanding programme requirements.
Image: Hamzah / Wikimedia Commons, CC BY 3.0
