Finance Minister Muhammad Aurangzeb speaks during an interview with Reuters at the 2025 IMF and World Bank Annual Spring Meetings in Washington, DC, US, April 25, 2025. Photo: Reuters/File
ISLAMABAD:
The federal and provincial governments on Tuesday agreed on a framework outlining the broad contours of a potential targeted subsidy mechanism, as part of efforts to develop a coordinated and sustainable approach to oil price and subsidy reforms.
The understanding was reached at a high-level meeting held at the Finance Division under the chairmanship of Finance Minister Muhammad Aurangzeb with the participation of top political leaders of the provinces.
“It was agreed that a framework outlining the general contours of a potential targeted subsidy mechanism will be developed and shared with all stakeholders to garner further input.
The provinces will continue to refine their proposals in light of the discussions, with a view to reaching a practical and consensus-based solution,” says a press release from the Ministry of Finance.
In his opening remarks, the Finance Minister said the meeting was a continuation of the ongoing consultations launched under the leadership of the country’s top leaders to develop a coordinated strategy for oil price and subsidy reforms. He highlighted the importance of collaborative decision-making and close coordination between the federation and the provinces.
Participants had a detailed discussion on how to move away from generalized subsidy regimes and towards more targeted and efficient support mechanisms. Provincial representatives shared various proposals and perspectives, reflecting their administrative capabilities, data availability and socioeconomic considerations.
The meeting deliberated on ways to ensure that support measures were targeted at vulnerable segments of society while maintaining fiscal discipline and minimizing market distortions. Possible mechanisms for the delivery of subsidies were also discussed, including the use of existing databases, digital platforms and cash transfer systems.
Emphasis was placed on ensuring transparency, accountability and effective governance structures in the design and implementation of future grant agreements. Participants also highlighted the need for a coordinated national approach, along with flexibility for provinces in implementation.
Aurangzeb appreciated the constructive engagement of the participants and reiterated the government’s commitment to protecting vulnerable groups while ensuring economic stability.
The meeting was attended by Chief Ministers of the four provinces, Principal Secretaries (virtually), Petroleum Minister Ali Pervaiz Malik, Economic Affairs Minister Ahad Cheema, Information Technology and Telecommunication Minister Shaza Fatima Khawaja, along with Federal Secretaries of Finance, Petroleum, IT and Telecom, and senior officials of relevant ministries, divisions and regulatory authorities.
Earlier this month, the government sharply increased diesel and gasoline prices by Rs 55 per liter, or 20%, citing the ongoing conflict between the United States, Israel and Iran, which has disrupted global supply chains and pushed crude oil prices to a two-year high.
In response to the crisis, both the federal and provincial governments had introduced a series of austerity measures, including an additional weekly holiday, a reduction in free gasoline allowances for ministers, restrictions on protocol vehicles, and proposals to provide subsidized fuel to students.
Last week, the government also approved a significant increase of Rs 200 per liter in the tax on high-octane fuel used in luxury vehicles, raising the total tax to Rs 300 per liter and the price to Rs 600 per liter.
Although the government was expected to raise oil prices further due to prevailing uncertainty, it had refrained from doing so on two occasions, stating that Rs 125 billion had been allocated through savings and development budget cuts to protect consumers against rising global oil prices.
The federal government and provinces also agreed to implement a targeted fuel subsidy framework leveraging technology, with an emphasis on transparency, efficient delivery and promoting fuel conservation through behavioral measures.
