Finance Minister Muhammad Aurangzeb speaks during a Reuters interview at the 2025 annual IMF/World Bank Spring Meetings in Washington, DC, US, April 25, 2025. Photo: Reuters/ File
ISLAMABAD:
The federal and provincial governments agreed on Tuesday to a working framework outlining the broad contours of a possible targeted subsidy mechanism, as part of efforts to develop a coordinated and sustainable approach to petroleum pricing and subsidy reforms.
The understanding was reached at a high-level meeting held in the Finance Department under the chairmanship of Finance Minister Muhammad Aurangzeb, attended by the top political leadership of the provinces.
“It was agreed that a working framework outlining the broad contours of a possible targeted grant mechanism will be developed and shared with all stakeholders for further input.
The provinces will continue to refine their proposals in light of the discussions with a view to reaching a consensus-based and practical solution,” reads a press release from the Ministry of Finance.
In his opening remarks, the finance minister said the meeting was a continuation of ongoing consultations initiated under the guidance of the country’s senior leadership to develop a coordinated strategy for oil pricing and subsidy reforms. He emphasized the importance of collaborative decision-making and close coordination between the federation and the provinces.
Participants held a detailed discussion on moving away from generalized subsidy schemes to more targeted and effective support mechanisms. Provincial representatives shared different proposals and perspectives that reflected their administrative capacity, data availability and socio-economic considerations.
The meeting discussed ways to ensure that support measures were targeted at vulnerable sections of society, while maintaining fiscal discipline and minimizing market distortions. Possible mechanisms for grant delivery, including use of existing databases, digital platforms and cash transfer systems, were also discussed.
Emphasis was placed on ensuring transparency, accountability and effective management structures when designing and implementing future grant schemes. Participants also highlighted the need for a coordinated national approach, alongside flexibility for provinces in execution.
Aurangzeb appreciated the constructive engagement of the participants and reiterated the government’s commitment to protect vulnerable groups while ensuring economic stability.
The meeting was attended by the chief ministers of all four provinces, chief secretaries (by and large), petroleum minister Ali Pervaiz Malik, finance minister Ahad Cheema, information technology and telecommunication minister Shaza Fatima Khawaja, along with federal secretaries of finance, petroleum and IT and telecom and regulatory authorities from relevant authorities and regulatory authorities.
Earlier this month, the government sharply hiked diesel and petrol prices by Rs55 per litre, or 20%, citing the ongoing conflict between the US and 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 extra weekly holiday, a reduction in free petrol allocations for ministers, restrictions on protocol vehicles and proposals to provide subsidized fuel for students.
Last week, the government had also approved a significant hike of Rs200 per liter in the fuel tax on high-octane fuel used in luxury cars, raising the total tax to Rs300 per liter and the price to Rs600 per litre.
Although the government had been expected to raise oil prices further due to the prevailing uncertainty, it had refrained from doing so on two occasions, stating that Rs125 billion had been allocated through austerity and development budget cuts to cushion consumers against rising global oil prices.
The federal government and the provinces had also agreed to implement a targeted fuel subsidy framework that leverages technology, with an emphasis on transparency, efficient delivery and promoting fuel conservation through behavioral measures.
