New Delhi, April 2
Pakistan's provincial governments have agreed to share the financial burden of a fuel subsidy announced by Prime Minister Shehbaz Sharif, as the country grapples with rising global oil prices triggered by the ongoing conflict in the Middle East, a report has said.
The decision comes at a time when international petroleum prices have surged due to supply disruptions, with the conflict now entering its fifth week, according to a report by Business Recorder.
While it remains unclear whether the provinces were consulted before the announcement, all four chief ministers have backed the move, citing the need to protect citizens' living standards during a period of economic stress.
However, the duration and total cost of the subsidy remain uncertain, as there is no clear timeline for the end of the conflict or stabilisation in global oil markets.
The Prime Minister has pledged not to increase petrol prices, but the final fiscal impact of this commitment is difficult to estimate.
The situation poses a significant challenge for Pakistan's already fragile economy, which has long struggled with limited fiscal space.
The country has relied on multiple programmes from the International Monetary Fund over the decades, including the current 36-month Extended Fund Facility, to manage its economic pressures.
Economists note that external shocks such as rising oil prices tend to worsen Pakistan's fiscal position.
Lower economic growth can reduce tax revenues, particularly from indirect taxes, which form a major part of government income.
At the same time, pressure on foreign exchange reserves -- many of which are based on borrowed funds or rollovers from friendly countries -- limits the country's ability to import essential goods, further affecting production and revenue collection.
Data from the Federal Board of Revenue shows a tax shortfall of 457 billion rupees till February 2026, even before the escalation of the Middle East conflict. This gap is expected to widen further in the coming months.
To manage rising fiscal pressure, the government has already begun cutting development spending. It recently reduced allocations under the Public Sector Development Programme (PSDP) by 100 billion rupees to help fund the fuel subsidy.
Additionally, an austerity drive has been announced, along with the creation of a Prime Minister's Austerity Fund, which has received an initial allocation of 27 billion rupees.
Analysts warn that while such measures may provide short-term relief, deeper reforms are needed to stabilise the economy.
These include reducing current expenditure, improving tax collection systems, and making the tax structure more fair and efficient.
- IANS
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