EL7.AI
Macro EconomyMedium•14 November 2026•
4 min read

IMF urges Pakistan to end fuel subsidies quickly and limit any aid to targeted groups

Key Facts

1The IMF recommended quickly phasing out the fuel subsidy program because of its high cost and broad targeting.
2The supplementary grant allocated to implement the fuel subsidy program is 75 billion rupees, approved by the Economic Coordination Committee on September 14, 2026.
3The FY2027 budget is based on a targeted primary surplus of 2.0% of gross domestic product.
4Transport group prices rose 28.61% year on year in October, compared with 11.03% for the housing, water, electricity, gas and fuel group.
5Executive Board approval could make about $1 billion and $210 million available from two facilities, bringing total disbursements to about $5.7 billion.

On November 14, the International Monetary Fund renewed its recommendation that Pakistan quickly phase out its fuel subsidy program, saying its cost is high and its targeting is broad. The Fund called for any future assistance, if oil prices rise unexpectedly, to be limited, temporary and targeted through existing social assistance programs. It said the assistance must remain within the FY2027 budget ceiling. The recommendation puts a swift end to the current program at the center of the Fund’s position on subsidies, limiting any subsequent response to a narrower scope. The Fund set out these conditions in a statement published on October 7, before its spokesperson reaffirmed the recommendation on November 14.

The call comes as Pakistan’s government implements a fuel subsidy program approved by the Economic Coordination Committee on September 14, with a supplementary grant of 75 billion rupees. Under the program, two- and three-wheelers receive 500 rupees a week, equivalent to 5 liters at the price specified in the plan. It also allocates 1,000 rupees every 10 days for cars with engine capacities of no more than 800 cc. The government restricted eligibility to non-commercial use and one vehicle per owner. The program’s terms show that the subsidy was designed to reach specific groups and vehicles, while the Fund says its current targeting remains broad.

The Fund’s recommendation is tied to a broader fiscal framework for FY2027, whose budget, it said, is based on a targeted primary surplus of 2.0% of gross domestic product. It asked that any future fuel support be absorbed within the budget ceiling rather than provided outside the defined fiscal framework. That means any response to an oil shock should be limited, temporary and targeted through existing social programs, according to the Fund. The statement did not provide a new subsidy allocation, but set out the conditions that should govern any subsequent assistance if oil prices surprise the government with a sharp increase. This position links protecting beneficiaries from a price shock with preserving the budget target for the next fiscal year.

Pakistan is facing price pressures as the discussion unfolds. The Bureau of Statistics recorded a 28.61% year-on-year rise in the transport group in October, while prices in the housing, water, electricity, gas and fuel group increased 11.03%. In an assessment published in October, the IMF said headline inflation had fallen to around 10.3% in September after peaking in May, while core inflation remained under control. The figures show diverging trends across price groups, with transport among the items that recorded a sharp annual increase in October. The Fund did not link ending fuel subsidies to containing inflation in its recommendation; instead, it cited the program’s cost and broad targeting as reasons to phase it out quickly.

In its risk assessment, the Fund listed geopolitical tensions, volatile energy prices, tighter global financial conditions and trade disruptions. It also described the Middle East war as a major headwind for Pakistan’s economy, warning that continued price volatility could weigh on the economic outlook. The risks identified by the Fund extend beyond energy markets, from global financing conditions to trade flows. Oil prices feature directly in its recommendation: a sudden increase is the circumstance that could warrant limited future assistance. The Fund said, however, that such assistance must flow through existing programs and remain within the FY2027 budget ceiling.

The recommendation comes as part of Pakistan’s financing program reviews with the Fund. On October 7, the IMF announced a staff-level agreement on the fourth review of the Extended Fund Facility and the third review of the Resilience and Sustainability Facility, with the agreement still subject to approval by the Executive Board. If the Board approves it, Pakistan will have access to about $1 billion from the Extended Fund Facility and $210 million from the Resilience and Sustainability Facility. That would bring total disbursements under the two facilities to about $5.7 billion. Board approval remains the next step required to make the payments available, according to the Fund’s statement.

The Fund recorded real GDP growth of 4% in the first three quarters of FY2026 and estimated full-year growth at 3.6%. These figures provide context for the Fund’s assessment of the economy’s trajectory, alongside its estimate that headline inflation was around 10.3% in September after peaking in May. In the October statement, the agreements on the two reviews remained subject to an Executive Board decision, whose approval would open the way for new disbursements. On fuel subsidies, the Fund tied any subsequent assistance to a sudden rise in prices and to the specified targeting, duration and financing conditions. The upcoming financing reviews therefore coincide with the government’s continued commitment to the FY2027 budget framework set out by the Fund.