MediumIV Macro Policy & Sovereign Debt1 October 2026, Thursday
Fuel subsidies and gas sector debt stall Pakistan's IMF review
According to The Express Tribune, the IMF review has stalled over a 75 billion rupee fuel subsidy and a proposal to write off 1.4 trillion rupees owed to gas companies. Dawn, however, reported that revenue had beaten its first-quarter target and that a $1.2 billion tranche awaits board approval.
The Express Tribune reported on 2 October that the IMF believes the true cost of a 75 billion rupee fuel subsidy for motorcycle and small car owners, to run for three months, could be higher. Under its $7 billion programme Pakistan had pledged not to introduce fuel subsidies or cross-subsidies, and according to the newspaper that pledge was broken last month. The petroleum ministry argued that the tax-free import cost of petrol is about 250 rupees per litre, while consumers pay 390 rupees, including 110 rupees in taxes and a 27-rupee margin. The IMF also objects to writing off 1.4 trillion rupees owed to gas distribution companies; total circular debt is estimated at 3.6 trillion rupees.
Dawn's report on 1 October described the more positive side of the talks. Pakistan beat its first-quarter revenue target, though by how much was not disclosed. The government committed to delivering electricity subsidies through BISP (the Benazir Income Support Programme, a targeted cash assistance system) by January 2027. It also pledged to raise cash transfers by about 25% to 18,000 rupees. According to Dawn, the policy rate stands at 11.5%, August consumer inflation was above 11%, and September inflation is expected in a range of 10–11%. The Express Tribune said the details of a gas sector plan covering 3.6 trillion rupees of circular debt will be discussed next week.
Talay assessment
Bottom line
The review is moving along two tracks. Revenue performance and the timetable for shifting to BISP are positive, while the fuel subsidy and gas sector debt remain in dispute. The fate of the $1.2 billion tranche depends on the government tying the fuel subsidy to a targeted mechanism and reaching agreement on gas receivables. The most likely outcome is a delayed staff-level agreement with additional conditions.
Likely effects
- Pakistan's public financesNegative1–6 months
If the fuel subsidy exceeds 75 billion rupees or gas receivables are written off, budget targets will come under strain and new revenue measures could be needed.
- Fuel and household budgetsNegativeWeeks
The IMF's insistence on targeted support favours payments to narrow groups via BISP over general price support; the burden on middle-income consumers may not ease.
- External financingPositive1–6 months
Beating the revenue target and the subsidy reform timetable provide a favourable basis for approval of the tranche and for the confidence of other creditors.
Possibilities, ranked
- 1Agreement with extra conditions55%
The government agrees to make the fuel subsidy targeted, and the staff-level agreement is signed after some delay.
Watch: Talks on the gas sector circular debt plan and the IMF's end-of-review statement
- 2Drawn-out negotiations35%
No agreement is reached on gas receivables and the fuel subsidy, and the review drags on for weeks through virtual meetings.
Watch: Reports that the IMF mission has left without an agreement
- 3Quick compromise10%
The two sides agree with minor changes to the current draft, and the tranche goes swiftly onto the board's agenda.
Watch: Announcement of a staff-level agreement
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- Disputed fuel subsidy (3 months)▼ 75bn rupees
- Gas receivables to be written off▼ 1.4tn rupees
- Total circular debt▼ 3.6tn rupees
- IMF tranche awaiting approval▲ $1.2 billion