Pakistan’s federal government is set to raise petrol and diesel prices within the next few days, as it moves to partially pass on rising import costs to consumers while negotiating a subsidy-sharing arrangement with provincial governments to shield vulnerable groups from the full impact.
Government Confirms Imminent Price Revision
ISLAMABAD: Pakistan is preparing to revise fuel prices upward within days, government sources confirmed, as authorities work to narrow a widening gap between subsidised pump prices and actual import costs that has placed mounting strain on the national budget.
The decision was reached following a high-level meeting headed by Finance Minister Muhammad Aurangzeb, attended by the chief ministers of all four provinces and senior federal officials. The consultations focused on designing a coordinated, targeted subsidy mechanism that would reduce financial pressure while protecting low-income households, motorcyclists, and farmers.
The size of the increase has not yet been formally announced and will be determined in part by prevailing international oil market conditions. Final pricing calculations are being prepared by the Petroleum Division and the Oil and Gas Regulatory Authority (OGARA) and are expected to be completed at the weekend.
Price Gap Signals Significant Hike Ahead
Government estimates indicate that current pump prices are substantially below import-adjusted costs. Petrol is priced at approximately Rs. 100 per litre below its actual import value, while the gap for diesel surpasses Rs. 200 per litre — figures that officials say are financial unsustainable without shared provincial support.
Authorities are weighing the full pass-through of the petrol price adjustment to consumers. For diesel, they are considering transferring approximately half of the cost gap, given the fuel’s direct link to freight charges and, by extension, food inflation.
Federal Subsidies Near Their Limit
The federal government has absorbed approximately Rs. 129 billion in fuel subsidies over the past three weeks alone. Officials have set a cap of around Rs. 158 billion on total federal support, making provincial contributions essential to sustaining any continued relief for consumers.
The fiscal strain prompted consultations at the highest level of government. Following discussions between President Asif Ali Zardari and Prime Minister Shehbaz Sharif, provinces were formally asked to share the subsidy burden under a structured cost-sharing formula.
Provinces Agree to Share the Burden
Under the proposed framework, Punjab and Sindh will contribute to the subsidy pool based on their respective population shares as determined by the National Finance Commission formula. Khyber Pakhtunkhwa and Balochistan will participate based on fuel consumption levels within their territories.
All four provincial governments agreed in principle to the arrangement, and a formal coordinated framework is expected to be announced by the Prime Minister in few days.
Targeted Relief for Motorcyclists and Farmers
Central to the government’s plan is a rationing-based subsidy for motorcyclists, who represent one of the most fuel-dependent segments of the population. A uniform mechanism governing eligibility and distribution is being finalised and will be unveiled by the Prime Minister upon confirmation.
On the agricultural front, Sindh will channel diesel support to farmers through its existing Hari Card database, a digital welfare identification system. Punjab and Khyber Pakhtunkhwa have committed to rolling out comparable programmes for their farming communities, though operational details are still being worked out.
Diesel Hike Raises Food Inflation Concerns
Policymakers have flagged the diesel price adjustment as a particular concern given its potential to accelerate food inflation. As the primary fuel for freight and logistics, higher diesel costs tend to feed rapidly into the prices of essential goods transported across the country.
In a move to contain the spillover, all provinces agreed to freeze fares on Bus Rapid Transit systems. However, officials cautioned that the arrangement may result in fare disparities between major urban centres and smaller towns and rural areas not served by mass transit networks.
Weekly Subsidy Costs Could Climb to Rs. 30 Billion
Government estimates put the weekly cost of the targeted subsidy programme at between Rs. 15 billion and Rs. 18 billion under current conditions, with projections rising to as high as Rs. 30 billion should global oil prices continue to climb.
Federal and provincial authorities believe the combined fiscal resources are sufficient to sustain the programme through the end of the current fiscal year in June. However, officials acknowledged that prolonged volatility in international energy markets could complicate planning and strain the arrangement beyond its current parameters.
Part of Broader Petroleum Pricing Reforms
The meeting concluded with an agreement to develop a formal framework for a coordinated targeted subsidy mechanism. Authorities described the initiative as a component of wider petroleum pricing reforms intended to reduce long-term fiscal dependence on blanket fuel subsidies while containing inflationary pressures and preserving a basic standard of protection for the country’s most economically vulnerable citizens.
Official announcements from the Petroleum Division and the Prime Minister’s Office are expected later this week.
