The government has decided to reduce its subsidy budget by 8% for the next fiscal year 2026-27, despite the aim to protect the poor from high inflation. The total subsidies allocated for FY 2025-26 were Rs1.186 trillion, but actual spending was lower at Rs1.157 trillion, as per budget documents for FY 2026-27. For the upcoming fiscal year, Rs1.091 trillion has been set aside, an 8% decrease from the original allocation of Rs1.186 trillion for the current year.
Power Sector Subsidies
The government failed to fully utilize the subsidy for electricity consumers. Out of the budgeted Rs1.036 trillion for the power sector in FY26, actual expenditure was only Rs893.136 billion. In FY27, the electricity subsidy has been further cut to Rs830 billion, down from the original Rs1.036 trillion in the outgoing year. The subsidy for agricultural tube wells in Balochistan has been reduced from Rs4 billion in FY26 to Rs3 billion for FY27. The inter-DISCOs tariff differential subsidy stands at Rs248 billion for FY27, slightly lower than Rs249.136 billion in FY26. For the merged districts of Khyber-Pakhtunkhwa (formerly Fata), the subsidy has been cut to Rs34 billion from Rs40 billion. However, the tariff differential subsidy for Azad Jammu and Kashmir (AJK) has increased to Rs81 billion from Rs74 billion. The Pakistan Energy Revolving Fund subsidy remains unchanged at Rs48 billion. K-Electric's tariff differential subsidy has been raised to Rs163 billion, significantly higher than Rs125 billion in FY26, while the subsidy for KESC agricultural tube wells in Balochistan stays at Rs1 billion.
IPPs and Circular Debt
Payments to independent power producers (IPPs) were initially budgeted at Rs95 billion in FY26 but were revised upward to Rs200 billion. No funding has been allocated for IPPs in FY27. The allocation to curb circular debt has been set at Rs252 billion for FY27, an increase of Rs100 billion from FY26. In the outgoing year, the lump sum provision for power subsidy (circular debt) was estimated at Rs400 billion but later dropped to Rs152 billion.
Petroleum and RLNG Subsidies
Petroleum subsidy was estimated at Rs1.2 billion for the current fiscal year, but no allocation has been made for FY27. The shortfall in Pepco's guaranteed throughput was budgeted at Rs1.2 billion and later revised to Rs1.18 billion, with no allocation for FY27. The RLNG subsidy for industry, including zero-rated exporters under SNGPL, was Rs17 million in FY26 but has been eliminated for FY27.
Food and Agriculture Subsidies
Food subsidy for Passco has been reduced to Rs19 billion for FY27, compared to a revised Rs20 billion in FY26. Within this, the wheat reserves subsidy has dropped to Rs9.5 billion from Rs14 billion, while the cost differential for wheat sales has increased to Rs9.5 billion from Rs6 billion. The subsidy for industries and production has been raised to Rs37 billion for FY27, up from a budgeted Rs24 billion (later revised to Rs12.193 billion) in FY26. An allocation of Rs5.8 billion is proposed for urea production and supply by fertilizer plants. The electric vehicle scheme subsidy has been cut to Rs8 billion from Rs9 billion.
Utility Stores and Other Subsidies
To cover Utility Stores Corporation (USC) arrears, Rs23 billion has been proposed for FY27. USC sugar-related arrears subsidy was budgeted at Rs15 billion in FY26 but actual spending was Rs3.193 billion, with no allocation for FY27. Other subsidies were initially budgeted at Rs104.7 billion for FY26 but revised to Rs230.5 billion; for FY27, this category has been allocated Rs205 billion. Wheat subsidy for Gilgit-Baltistan has been slashed to Rs15 billion from Rs20 billion, and imported urea subsidy has been cut to Rs10 billion from Rs15 billion.
Housing and SME Schemes
The Naya Pakistan Housing Authority subsidy was targeted at Rs1 billion in FY26, while the Mera Pakistan Mera Ghar Scheme has been allocated Rs5 billion in FY27. The markup subsidy and risk-sharing for farm mechanization and Kissan package have been reduced to Rs5 billion from Rs7 billion. The refinance and credit guarantee scheme for SME Asaan Finance remains at Rs1 billion. The subsidy for enhancing SME sector financing has been cut to Rs2 billion from Rs5.4 billion. The markup subsidy to phase out State Bank's refinancing facilities and export refinance schemes has been increased to Rs88 billion from Rs30 billion.
Gas and Metro Bus Subsidies
The provision for gas schemes within a 5km radius has been reduced to Rs1 billion from Rs3 billion. The EFS enhancing plan had Rs5 billion in FY26 but no allocation for FY27. Metro Bus subsidy has been set at Rs5 billion for FY27, down from a revised Rs6.976 billion in FY26.
