Government Cuts Subsidies To Rs1.091 Trillion

The federal government has proposed a reduction in total subsidy expenditures for fiscal year 2026-27, allocating Rs1.091 trillion compared to the Rs1.186 trillion budgeted for the preceding fiscal year, reflecting ongoing efforts to manage public finances and rationalise expenditure. Budget documents indicate that actual subsidy disbursements during FY2025-26 amounted to Rs1.157 trillion, primarily due to lower-than-anticipated spending on power-sector support programmes. In addition to budgeted expenditures, the government incurred an extra Rs127 billion under special austerity-related measures introduced by the Prime Minister in response to economic challenges arising from the conflict involving the United States, Israel and Iran. A new subsidy category has also been incorporated into the FY2026-27 budget for the Prime Minister’s Apna Ghar Programme, with an allocation of Rs71 billion aimed at supporting housing-related initiatives. Subsidy support for Pakistan Agricultural Storage and Services Corporation (PASSCO) has been reduced from Rs20 billion to Rs19 billion. Within this allocation, Rs9.5 billion has been earmarked for maintaining strategic wheat reserves, compared with Rs14 billion allocated in the previous fiscal year, while a further Rs9.5 billion has been designated to cover wheat sale price differentials, representing an increase from Rs6 billion in FY2025-26. Subsidies administered through the Industries and Production Division have been increased significantly to Rs37 billion for FY2026-27. By comparison, the original allocation for the outgoing fiscal year stood at Rs24 billion before being revised downward to Rs12.193 billion. The latest allocation includes Rs5.8 billion to support the production and supply of urea fertiliser and Rs8 billion in incentives under the government’s Electric Vehicle Scheme. The overall subsidy allocation for the power sector has been reduced to Rs830 billion from the Rs1.036 trillion originally budgeted during FY2025-26, while actual expenditure during the outgoing year amounted to Rs893.136 billion. The tariff differential subsidy for electricity distribution companies has been marginally reduced to Rs248 billion from Rs249.13 billion. Support for tariff differentials relating to agricultural tube wells in Balochistan has been lowered from Rs4 billion to Rs3 billion, while subsidies for the merged districts of Khyber Pakhtunkhwa have been reduced by approximately 15%, declining from Rs40 billion to Rs34 billion. In contrast, the tariff differential subsidy allocated to Azad Jammu and Kashmir has been increased from Rs74 billion to Rs81 billion. Funding for the Pakistan Energy Revolving Fund remains unchanged at Rs48 billion. The tariff differential subsidy provided to K-Electric has been increased by more than 30%, rising from Rs125 billion to Rs163 billion, while a separate subsidy of Rs1 billion for agricultural tube wells in Balochistan has been retained at the previous year’s level. Notably, no allocation has been proposed for payments to independent power producers during FY2026-27, despite an initial allocation of Rs95 billion in FY2025-26 that was subsequently revised upward to Rs200 billion. Instead, the government has introduced a dedicated allocation of Rs252 billion aimed at containing and managing circular debt within the power sector. This represents a restructuring of fiscal support mechanisms, as the previous fiscal year initially included a combined provision of Rs400 billion for power subsidies and circular debt management before being revised downward to Rs152 billion. The proposed subsidy framework reflects the government’s attempt to balance fiscal consolidation objectives with targeted support for housing, industrial development, energy-sector sustainability, and circular debt management.