KARACHI: An International Monetary Fund (IMF) spokesperson on Saturday reiterated that Pakistan should “phase out” its fuel subsidy scheme, saying that any future government support should oil prices rise be limited, timebound and accommodated within this fiscal year’s budget.

Pakistan launched a fuel subsidy scheme in September to shield lower-income motorists from rising petrol prices amid the US-Iran war. The scheme provides motorcycle and rickshaw users with a weekly petrol token worth Rs500 ($1.80), while owners of cars with engines of up to 800cc receive a discount of Rs100 ($0.36) per liter on up to 10 liters every 10 days.

Pakistan is working to transition from stabilization to economic growth with the help of the IMF’s $7 billion Extended Fund Facility (EFF) loan program. In a statement last month, the IMF explicitly called for the fuel subsidy to be phased out promptly due to its high cost and broad targeting.

“In the context of the current review, as stated in the Oct. 7 staff-level agreement, the fuel support scheme should be phased out, given its broad targeting,” an IMF spokesperson told Arab News.

“And any future fuel support— should oil prices surprise on the upside— be limited, timebound, targeted using established social assistance programs, and accommodated within the FY27 budget envelope,” he added.

Pakistan’s Finance Minister Muhammad Aurangzeb, State Minister for Finance Bilal Azhar Kayani and Finance Adviser Khurram Schehzad did not respond to Arab News’ requests for comments on the IMF’s response.

Like several countries worldwide, Pakistan was also forced to increase prices of petroleum products due to the US-Iran war since February. Petrol prices reached a record Rs458.41 [$1.66] per liter on Apr. 3, which have since then gradually eased to Rs330 ($1.20] per liter as tensions recede.

The IMF spokesperson noted that under the EFF program, Pakistani authorities have committed to allow domestic fuel prices to align with international fuel rates, while mitigating the impact on the most vulnerable population segment.

’SIGNIFICANT HEADWIND’

The US-Israel war on Iran has disrupted global shipping routes, especially through Tehran’s blockade of the strategic Strait of Hormuz trade route. This has threatened prospects of economic growth for developing countries such as Pakistan.

“The war in the Middle East remains a significant headwind for Pakistan, given its reliance on oil and gas imports from the Gulf countries,” the spokesperson said.

Higher oil prices, the IMF official said, had already increased domestic inflation pressures in the South Asian nation. Pakistan’s consumer prices rose 9.6 percent in October compared with 10.3 percent in a month ago, according to the Pakistan Bureau of Statistics.

“Sustained volatility could weigh on the economic outlook,” the IMF official warned.

In response to the global shock, the spokesperson said, Islamabad’s policy priorities should remain centered on maintaining macroeconomic stability and advancing reforms to strengthen public finances, enhance competition, raise productivity and competitiveness, bolster the social safety net and human capital.

The IMF spokesperson also said Islamabad should undertake reforms in its state-owned enterprises and improve public service provision and energy sector viability.

Last month, the IMF reached a staff-level agreement with Pakistan following talks with authorities in Karachi and Islamabad. The agreement awaits approval from the Fund’s Executive Board.

Upon approval, Pakistan will receive about $1 billion under the EFF and $210 million under the Resilience and Sustainability Facility (RSF), taking the total number of disbursements to approximately $5.7 billion.

“The IMF Executive Board meeting on Pakistan’s EFF and RSF review, and the 2026 Article IV consultation is expected to take place in December, subject to the fulfillment of program requirements,” the spokesperson said.

He did not specify the requirements.