IMF urges Pakistan to phase out petrol subsidy

The International Monetary Fund (IMF) has called on Pakistan to gradually phase out its petrol subsidy scheme and avoid expanding subsidies beyond targeted beneficiaries, as the two sides reached a staff-level agreement on the latest review of the country’s economic programme.

According to the IMF’s latest review statement, Pakistan has reached a staff-level agreement following discussions under the Extended Fund Facility (EFF) programme. The agreement, once approved by the IMF Executive Board, will allow Pakistan to receive around $1.21 billion in financing.

The amount includes about $1 billion under the fifth review of the EFF programme and around $210 million under the Resilience and Sustainability Facility (RSF).

The IMF said Pakistan had made strong efforts to meet the programme’s economic targets and that the programme had contributed to greater macroeconomic stability while helping accelerate the country’s reform process.

The Fund noted that Pakistan’s economy recorded growth of around 4% during the July-March period of fiscal year 2025-26. However, it said the economic impact of the Middle East crisis affected the growth outlook, bringing the projected growth rate down to around 3.6%.

The IMF also highlighted inflationary pressures, noting that inflation reached its highest level in May 2026. At the same time, strong remittance inflows helped Pakistan contain pressure on its current account.

On the government’s fuel relief initiative, the IMF stressed that the petrol subsidy programme should be gradually withdrawn. It called for avoiding any further expansion of the scheme and said financial support should remain limited to eligible and targeted beneficiaries.

The Fund also urged Pakistan to accelerate reforms in the energy sector. It called for improvements in the recovery of outstanding payments and measures to reduce production costs.

The IMF further emphasized the need to strengthen collections in the gas sector and reduce losses. Better financial management of the energy sector, it said, would be important for improving the sustainability of Pakistan’s economy.

The latest agreement represents another step in Pakistan’s ongoing engagement with the IMF, with the release of the funds subject to approval by the Fund’s Executive Board.