Pakistan, IMF reach $1.2bn staff-level agreement as fuel scheme to be phased out

Pakistan and the International Monetary Fund (IMF) have reached a staff-level agreement that would unlock about $1.2 billion under two separate financing programmes, with Islamabad agreeing to phase out its fuel subsidy scheme and strengthen spending on social and health sectors.

The agreement covers the fourth review of Pakistan’s 37-month Extended Fund Facility (EFF) programme and the third review of its 28-month Resilience and Sustainability Facility (RSF) arrangement, the IMF said in a statement issued early Thursday.

The deal still requires approval from the IMF Executive Board. Once approved, Pakistan would receive about $1 billion under the EFF and a further $210 million under the RSF, taking total disbursements under the two programmes to around $5.7 billion.

The IMF team, led by mission chief Iva Petrova, held discussions with Pakistani authorities in Karachi and Islamabad between September 23 and October 7 as part of the 2026 Article IV consultation and the reviews of both programmes.

Petrova said Pakistan should move quickly to end its fuel support scheme because of its high cost and broad coverage. “The fuel support scheme should be phased out promptly, given its high cost and broad targeting,” she said.

She added that any future fuel assistance, if oil prices rise unexpectedly, should be temporary and targeted through existing social assistance programmes, while remaining within the government’s budget allocation for fiscal year 2026-27.

Prime Minister Shehbaz Sharif had introduced the three-month fuel support programme with an allocation of Rs75 billion. Under the scheme, motorcyclists were to receive compensation equivalent to Rs100 per litre for up to 20 litres of monthly consumption, while owners of cars with engines up to 800cc were eligible for the same relief on up to 30 litres.