Pakistan commits to IMF to raise fuel prices if subsidies end

Pakistan has committed to passing on fuel price increases to consumers if fiscal space is insufficient to sustain subsidies, while expanding targeted subsidies and strengthening social protection under its programme with the International Monetary Fund (IMF), as inflation rose to 7.3% in March 2026, according to two media reports.

Under the Memorandum of Economic and Financial Policies, the government has agreed to maintain regular fuel price adjustments while introducing targeted subsidies to protect vulnerable groups. It has also decided to postpone the imposition of Federal Excise Duty on fertilisers and pesticides due to volatility in global prices and risks to the agricultural sector.

Officials said the assurance was given to the International Monetary Fund ahead of a staff-level agreement for the release of $1.2 billion in loan tranches, with further approval linked to revenue collection targets.

The government has described current subsidies on petrol and diesel as temporary, stating they will continue only if additional budgetary savings are identified. Discussions are ongoing with provinces to create fiscal space, including a proposed Rs200 billion adjustment.

Authorities have already generated savings through a reduction in fuel allowances for official vehicles and a 20 percent cut in non-salary expenditures, along with diverting Rs100 billion from the development budget.

Despite a 20 percent increase in fuel prices earlier, consumption remained unchanged, prompting discussions on passing additional price adjustments to consumers to manage demand.

As part of social protection measures, the Benazir Income Support Programme stipend will be increased from Rs14,500 to Rs19,500 from January 2027. The programme will also expand coverage, with 200,000 additional households to be included by the end of FY2026, bringing total beneficiaries to 10.2 million.

These commitments come as inflationary pressures intensified. Consumer price inflation rose to 7.3% year-on-year in March, up from 6.98% in February, breaching the State Bank’s 5–7% target range. On a monthly basis, prices increased by around 1.2%.

Transport costs were the largest contributor, rising 12.5% year-on-year, while housing and utilities increased 11.5%, driven by higher fuel prices, electricity charges and reduced subsidies. Food inflation eased to 3.6% as declines in perishable items offset increases in staples such as wheat and meat.

Among key items, wheat prices rose 34.2% year-on-year, wheat flour 23.6% and meat 11.2%. In the non-food category, personal effects increased 56.5%, liquefied hydrocarbons 23.5%, gas charges 22.9%, motor fuel 18.2% and electricity 14.2%.

The Wholesale Price Index also rose to 6.7%, indicating continued cost pressures that may pass through to consumers in the coming months. Core inflation remained elevated, with urban core at 7.4% and rural core at 8.4%.

The State Bank kept its policy rate unchanged at 10.5% in its latest monetary policy decision, while analysts warned that rising oil prices and external pressures could further increase inflation and weaken the rupee.

Separately, the government has initiated austerity measures, including a Rs100 billion reduction in the Public Sector Development Programme and savings of Rs27 billion through cuts in fuel allowances and non-salary expenditures.

Prime Minister Shehbaz Sharif has directed authorities to formulate a strategy to mitigate the economic impact of regional tensions, while ensuring that production and supply chains remain stable.

Officials said the strategy will focus on maintaining supply-demand balance and supporting exports after meeting domestic requirements.