Pakistan has reached an agreement with the International Monetary Fund (IMF) to phase out its existing gas cross-subsidy structure, valued at approximately ₨140 billion, according to a report by The News. The government intends to replace the current system with a targeted support mechanism linked to household income through the Benazir Income Support Programme (BISP).
This transition is a requirement of an IMF structural benchmark, which mandates that the government complete the shift to the new pricing framework by January 2027.
Shift from Consumption to Income-Based Support
Under the current arrangement, lower gas tariffs provided to protected and some non-protected domestic consumers are not funded through direct federal budget allocations. Instead, these subsidies are indirectly financed through higher charges imposed on other consumer categories.
Officials noted that the burden of these subsidies is currently borne by several sectors, including:
- Export-sector captive power plants
- General industries
- Compressed natural gas (CNG) stations
- Cement manufacturers
- Commercial consumers
- Affluent domestic users
While the existing system utilizes slab-based pricing tied to gas consumption levels to provide reduced rates for lower-income consumers, the revised framework will eliminate these subsidized slabs.
Impact on Tariffs and Assistance
Once the new framework is implemented, all consumers are expected to pay a uniform average gas tariff, which is currently estimated at around ₨1,750 per MMBtu.
To protect vulnerable populations, low-income households that meet government criteria will no longer receive utility pricing relief. Instead, they will receive direct financial assistance through BISP, with eligibility determined by income verification data.
According to officials, this new model is designed to improve the efficiency of support mechanisms and reduce misuse by shifting the focus away from consumption patterns toward strict income-based targeting.
Potential Implications
The move toward a uniform tariff could lead to a reduction in the financial burden currently placed on industrial and commercial sectors. The transition to BISP-linked support may allow the government to more accurately identify and assist the most needy households.
As the January 2027 deadline approaches, the government may need to focus on the accuracy of income verification data to ensure a seamless transition for eligible low-income households. The effectiveness of this shift will likely depend on the ability of the BISP to efficiently distribute financial aid to replace the lost utility subsidies.
