Pakistan cuts subsidy budget by 8% for FY27

The federal government has reduced its subsidy allocation for the next fiscal year. The total subsidy budget has been set at Rs1.091 trillion for FY2026-27.

The federal government has reduced its subsidy allocation for the next fiscal year. The total subsidy budget has been set at Rs1.091 trillion for FY2026-27.

This reflects an 8% decrease compared to the previous year’s allocation. Officials say the adjustment is part of broader fiscal consolidation measures.

Budget documents show that actual subsidy spending in the outgoing year also remained below the original target. The revised figures indicate continued pressure on public finances.

A major cut has been made in power sector subsidies. The allocation for electricity consumers has been reduced to Rs830 billion. This is lower than the previous year’s budgeted level.

Subsidies for several regional and sectoral categories have also been revised. Funding for some areas has been reduced, while a few have seen increases.

Support for Azad Jammu and Kashmir has been increased. Similarly, subsidies for K-Electric have also been raised for the upcoming year.

However, subsidies for merged districts of Khyber Pakhtunkhwa have been reduced. Agricultural support in some regions has also been scaled down.

The government has not allocated any funds for independent power producers for FY2027. Earlier years included significant payments under this head.

At the same time, funding for circular debt management has been increased to Rs252 billion. Officials say this is aimed at stabilising the energy sector.

Petroleum subsidies have been completely removed for the new fiscal year. Several other energy-related support schemes have also been discontinued.

Food and agriculture subsidies show mixed trends. PASSCO wheat support has been reduced overall. However, some internal adjustments have been made within the category.

Subsidies for Gilgit-Baltistan wheat and imported urea have also been reduced. These cuts are part of broader rationalisation measures.

Support for Utility Stores Corporation arrears has been allocated Rs23 billion. Some older subsidy categories have received no new funding.

Housing and SME-related subsidy programmes show mixed changes. Some schemes have been reduced, while others remain unchanged or slightly increased.

Officials say the changes are aimed at improving fiscal discipline and reducing pressure on the budget. Economists, however, caution that inflation and energy costs remain key risks for stability in the coming months.