IMF Tells Pakistan to End Petrol Subsidy
The International Monetary Fund has told Pakistan to phase out its petrol subsidy for motorcyclists, rickshaw drivers and small car owners, warning that any future fuel support must be limited, time-bound and paid for within this year’s budget. The message came from an IMF spokesperson in comments to Arab News on Saturday.
“The fuel support scheme should be phased out, given its broad targeting,” the spokesperson said. The Fund said any future relief, if oil prices rise again, should be limited, time-bound, targeted through established social assistance programmes and kept inside the fiscal year 2027 budget.
The demand is not new. The IMF called for the scheme to end promptly in its October 7 staff-level agreement, citing its high cost and broad targeting. The spokesperson’s comments repeat that position as Pakistan waits for the Fund’s Executive Board to approve the next review of the $7 billion Extended Fund Facility.
What the petrol subsidy gives motorists
The scheme, launched in September amid the US-Iran war, gives motorcycle and rickshaw users a weekly petrol token worth Rs500. Owners of cars up to 800cc get Rs100 off per litre on up to 10 litres every 10 days. The government approved the Rs75 billion digital fuel subsidy programme through the Economic Coordination Committee in September and recently extended it till December.
For the motorists it was meant to help, the subsidy is worth real money. A motorcyclist can save Rs2,000 a month from the weekly token alone, at a time when petrol has eased to around Rs330 a litre after hitting a record Rs458.41 a litre on April 3. The scheme covers the vehicles that lower-income families rely on most, which is why its end will be felt well beyond the pump.
The government has described the scheme as a three-month programme, so it was due to run to about mid-December in any case. The IMF wants nothing like it to follow unless it is small, targeted and paid through existing welfare programmes rather than a vehicle-based token.
$1.2 billion rides on the board decision
The subsidy question sits inside a larger negotiation. The staff-level agreement reached last month still awaits Executive Board approval, expected in December if Pakistan meets the programme requirements. Once approved, Pakistan will receive about $1 billion under the Extended Fund Facility and $210 million under the Resilience and Sustainability Facility, taking total disbursements to around $5.7 billion.
The IMF also warned that the Middle East war remains a significant headwind for Pakistan, given its reliance on Gulf oil and gas. Inflation stood at 9.6 percent in October, down from 10.3 percent a month earlier.
Pakistan has committed under the loan programme to let domestic fuel prices follow international rates while protecting the most vulnerable. That promise is hard to square with a broad subsidy that hands the same relief to every bike and small car owner, whatever their income. The Fund’s answer is to route any future help through established social assistance programmes, which can reach the poorest households directly.
The debate now moves to Islamabad, where the government must decide whether to let the scheme lapse in December or find a narrower replacement. Petrol now costs about Rs330 a litre after the latest price cut, and petrol pumps in the twin cities briefly halted the subsidy earlier this month. Pakistan has already met most of the IMF’s fiscal conditions for the review, while the petroleum levy alone raised Rs220 billion in two months.
Frequently asked questions
What has the IMF asked Pakistan to do about the petrol subsidy?
The IMF has asked Pakistan to phase out the fuel subsidy scheme promptly, saying it is costly and too broadly targeted. Any future fuel support must be limited, time-bound, targeted through established social assistance programmes and kept within the fiscal year 2027 budget.
Who benefits from the petrol subsidy?
Motorcycle and rickshaw users get a weekly petrol token worth Rs500. Owners of cars up to 800cc get Rs100 off per litre on up to 10 litres every 10 days.
How much does the subsidy scheme cost?
The government approved a Rs75 billion digital fuel subsidy programme through the Economic Coordination Committee in September. The scheme was described as a three-month programme and was recently extended till December.
What happens next with the IMF programme?
The staff-level agreement from October 7 awaits Executive Board approval, expected in December if Pakistan meets the programme requirements. Approval would release about $1 billion under the Extended Fund Facility and $210 million under the Resilience and Sustainability Facility.
How much is petrol now?
Petrol has eased to around Rs330 a litre after hitting a record Rs458.41 a litre on April 3. The latest price cut took effect on November 13.
