Finance Minister Muhammad Aurangzeb speaks during an interview with Reuters at the 2025 Spring Annual Meetings of the IMF and the World Bank in Washington, DC, United States, April 25, 2025. Photo: Reuters/File
ISLAMABAD:
The federal and provincial governments agreed Tuesday on a framework outlining a possible targeted subsidy mechanism, as part of efforts to develop a coordinated and sustainable approach to oil price and subsidy reforms.
This agreement 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 from the provinces.
“It was agreed that a framework outlining a possible targeted grant mechanism would be developed and shared with all stakeholders for further input.
The provinces will continue to refine their proposals in the light of the discussions, with a view to reaching a consensual and practical solution,” said a press release from the Ministry of Finance.
In his opening speech, the Finance Minister said the meeting was a continuation of ongoing consultations initiated under the leadership of the country’s top leaders to develop a coordinated strategy for oil price and subsidy reforms. He stressed the importance of collaborative decision-making and close coordination between the federation and the provinces.
Participants had an in-depth discussion on the need to move away from generalized subsidy schemes towards more targeted and effective support mechanisms. Provincial representatives shared various proposals and perspectives, reflecting their administrative capacities, data availability and socio-economic considerations.
The meeting deliberated on ways to ensure that support measures are aimed at vulnerable segments of society while maintaining fiscal discipline and minimizing market distortions. Possible grant-making mechanisms, including the use of existing databases, digital platforms and money transfer systems, were also discussed.
Emphasis was placed on ensuring transparency, accountability and effective governance structures when designing and implementing future grant agreements. Participants also highlighted the need for a coordinated national approach, as well as some flexibility for provinces in execution.
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 the chief ministers of the four provinces, chief secretaries (virtually), Minister of Petroleum Ali Pervaiz Malik, Minister of Economic Affairs Ahad Cheema, Minister of Information Technology and Telecommunications Shaza Fatima Khawaja, as well as federal secretaries of Finance, Petroleum, IT and Telecommunications, as well as senior officials of the relevant ministries, divisions and regulatory authorities.
Earlier this month, the government sharply hiked diesel and gasoline prices by Rs 55 per liter, or 20 percent, citing the ongoing conflict between the United States, Israel and Iran, which has disrupted global supply chains and pushed crude oil prices to their highest level in two years.
In response to the crisis, the federal and provincial governments introduced a series of austerity measures, including additional weekly leave, a reduction in free fuel allowances for ministers, restrictions on ceremonial vehicles and proposals to provide subsidized fuel for students.
Last week, the government had also approved a significant increase of Rs 200 per liter in the tax on high-octane fuel used in luxury vehicles, taking the total tax to Rs 300 per liter and the price to Rs 600 per litre.
Although the government was expected to raise oil prices further due to the prevailing uncertainty, it refrained from doing so twice, saying 125 billion rupees had been allocated through savings and development cuts to protect consumers against rising global oil prices.
The federal government and provinces had also agreed to implement a targeted fuel subsidy framework leveraging technology, with a focus on transparency, efficient delivery and promotion of fuel conservation through behavioral measures.
