Federal subsidies cut 8% to Rs1.091 trillion in FY27 budget

The federal government has reduced its subsidy allocation by 8% to Rs1.091 trillion for fiscal year 2026-27, compared with Rs1.186 trillion budgeted for the outgoing fiscal year.

Actual subsidy spending in FY26 stood at Rs1.157 trillion, mainly because expenditure on power-sector support remained below the original allocation.

The government also spent an additional Rs127 billion outside the budget under the prime minister’s austerity measures following the economic disruption caused by the US-Israeli war on Iran.

A new subsidy head has been introduced for the Prime Minister’s Apna Ghar Programme, with Rs71 billion allocated for FY27.

PASSCO allocation reduced

The food subsidy for the Pakistan Agricultural Storage and Services Corporation has been reduced to Rs19 billion from Rs20 billion.

Of the total FY27 allocation, Rs9.5 billion has been set aside for maintaining wheat reserve stocks, down from Rs14 billion in FY26.

Another Rs9.5 billion has been allocated to cover the cost differential on wheat sales, up from Rs6 billion in the outgoing fiscal year.

Industry support rises

Subsidies under the Industries and Production Division have been increased to Rs37 billion for FY27.

The government had originally allocated Rs24 billion under this head in FY26, but the amount was later revised down to Rs12.193 billion.

The new allocation includes Rs5.8 billion for the production and supply of urea fertiliser and Rs8 billion in incentives under the Electric Vehicle Scheme.

Power-sector subsidies

The power-sector subsidy has been reduced to Rs830 billion for FY27 from the Rs1.036 trillion originally budgeted in FY26.

Actual power-sector subsidy spending in the outgoing fiscal year stood at Rs893.136 billion.

The allocation for the inter-distribution company tariff differential subsidy has been marginally reduced to Rs248 billion from Rs249.13 billion.

Support for the tariff differential on agricultural tube wells in Balochistan has been cut to Rs3 billion from Rs4 billion.

The subsidy for the merged districts of Khyber Pakhtunkhwa has been reduced by 15% to Rs34 billion from Rs40 billion.

By contrast, the tariff differential subsidy for Azad Jammu and Kashmir has been increased to Rs81 billion from Rs74 billion.

The allocation for the Pakistan Energy Revolving Fund remains unchanged at Rs48 billion.

K-Electric subsidy increases

The tariff differential subsidy for K-Electric has been raised by more than 30% to Rs163 billion from Rs125 billion.

A separate Rs1 billion subsidy linked to agricultural tube wells in Balochistan has been maintained at the previous year’s level.

No allocation has been made for payments to independent power producers in FY27.

The government had initially budgeted Rs95 billion for independent power producers in FY26, but the provision was later increased to Rs200 billion.

A new Rs252 billion allocation has been introduced for containing circular debt in the power sector.

In FY26, the government initially set aside a lump-sum provision of Rs400 billion for power subsidies and circular debt, which was later revised down to Rs152 billion.