Pakistan to End Rs. 140 Billion Gas Subsidy Under IMF Deal

The Government of Pakistan has agreed to phase out the Rs. 140 billion gas subsidy for protected and some non-protected consumers, as part of a structural reform plan aligned with the International Monetary Fund (IMF) agreement. The adjustment forms a key component of broader energy sector reforms aimed at improving efficiency and fiscal sustainability.

Currently, the existing subsidy is provided through a consumption-based system, where lower slab rates offer subsidized gas prices to various consumer categories. This system is indirectly financed by cross-subsidies charged to industrial and commercial sectors, including export industries’ captive power plants, cement manufacturers, CNG stations, and high-end residential consumers.

Under the new framework, scheduled for completion by January 2027, all domestic and commercial consumers will pay the full average gas tariff estimated at around Rs. 1,750 per MMBtu. The removal of slab-based subsidies will end the long-standing cross-subsidy regime.

Instead of subsidized gas tariffs, targeted financial assistance will be provided to eligible low-income households through the Benazir Income Support Programme (BISP). This support will be linked to household income data rather than consumption volumes, ensuring that aid reaches those in genuine need.

Officials have emphasized that the reform will reduce distortions in gas pricing and promote sustainable fiscal management in the energy sector. The government clarified that it does not finance the subsidy directly from the national budget; the existing subsidy burden is currently shifted to industrial and commercial consumers.

The transition to a uniform gas tariff structure with direct income-based assistance seeks to align Pakistan’s gas pricing policies with international best practices and IMF structural benchmarks. This step is expected to enhance economic efficiency and improve the fiscal health of the country’s energy sector over the medium term.

The government has committed to complete the reform process by January 2027, as stipulated in the IMF agreement. The phased approach will allow consumers and businesses to adjust to the new tariff regime while ensuring social protection through BISP continues for vulnerable populations.

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