Mehmood ul Hasan Qadir — Economist & Financial Analyst | Dubai, UAE

The Pakistan Ledger | Opinion

Pakistan spends more on subsidies than it does on development. In a country where 220 million people live with chronic infrastructure deficits, education quality crises, and a healthcare system that bankrupts families, the federal government allocates billions of rupees annually to subsidise electricity, fuel, fertiliser, and food — and the majority of that subsidy benefit does not reach the poor people it is nominally designed to protect. Pakistan’s subsidy economy is a monument to regressive fiscal policy: funded by everyone through inflation and debt, captured primarily by those with enough economic and political power to access subsidised goods and services at scale.

Energy Subsidies — The Regressive Arithmetic

Electricity subsidy in Pakistan operates through cross-subsidy within the tariff structure and through direct government tariff differential payments to the power sector. The stated objective is to protect low-income domestic consumers in the lower consumption slabs. The distributional reality is more complex. Households consuming less than 100 units monthly — the genuinely poor — do receive meaningful subsidy benefit. But the electricity subsidy architecture also benefits middle and upper-middle-class households consuming 300–500 units monthly, commercial establishments, and — most egregiously — the agricultural tubewell electricity subsidy that provides heavily subsidised power to all agricultural pumping, regardless of the size of the farm operation.

A large landowner operating fifty tubewells on a thousand-acre farm in Punjab receives the same per-unit electricity subsidy as a subsistence farmer operating a single pump on two acres. The subsidy per rupee of agricultural income benefit is vastly larger for the large farm operator. This is not a targeting failure at the margins. It is a structural design choice that has never been seriously challenged because the agricultural electricity subsidy benefits the same landowning class that dominates provincial legislatures and rural political power structures.

Fertiliser Subsidy — Where It Actually Goes

Pakistan’s fertiliser subsidy — implemented through subsidised gas pricing to fertiliser manufacturers rather than direct subsidy to farmers — represents another case of subsidy incidence falling disproportionately on larger farm operations. The fertiliser subsidy benefit per hectare is proportional to usage, which is proportional to farm size. Large wheat and sugarcane farmers, operating on hundreds of acres, capture a disproportionate share of the aggregate subsidy benefit. Small farmers — with limited access to subsidised fertiliser through formal distribution channels and often forced to purchase through informal markets at unsubsidised prices — receive far less than their nominal entitlement.

PBS household income survey data, when combined with fertiliser consumption data by farm size, confirms this distributional analysis. The subsidy that is publicly framed as support for Pakistan’s small farmers is, in aggregate incidence, a significant transfer to large-scale agricultural operations. This is not a secret known only to economists. It is a public policy outcome that continues because the political economy of reforming it requires confronting the same landowning class that agricultural income tax reform must confront.

BISP — Pakistan’s Most Targeted and Most Underfunded Programme

The Benazir Income Support Programme is Pakistan’s most analytically defensible social protection mechanism — a means-tested cash transfer to low-income households, verified through the National Socioeconomic Registry. Its targeting efficiency — the proportion of benefits reaching the intended poor population — is, by international standards for comparable programmes, reasonable. Its scale relative to Pakistan’s poverty level and the fiscal cost of the untargeted subsidies it competes with for budget allocation is the problem.

BISP’s annual budget allocation — Rs. 400–500 billion in recent years — is dwarfed by the energy subsidy bill, which runs into the trillions when including tariff differential payments, capacity payment obligations, and circular debt accumulation. The country spends multiples more on energy subsidies with regressive incidence than it does on the one programme that demonstrably reaches the poor. This is a fiscal policy verdict: the Pakistani state prioritises politically connected subsidy capture over evidence-based poverty reduction. The cost — in human development terms — is incalculable.

The Reform Pathway — What Targeted Subsidies Look Like

The technical solution to Pakistan’s subsidy distortion is well-established: shift from commodity subsidies to direct income transfers targeted by income verification. Replace electricity tariff cross-subsidies with direct payments to low-income households that allow them to pay cost-reflective tariffs. Replace fertiliser price subsidies with direct cash transfers to small farmers registered in the agricultural database. Replace blanket petroleum subsidies with targeted transport cost support for low-income commuters. These reforms reduce fiscal cost, improve incidence targeting, and remove the price distortions that misallocate resources across the economy.

They have not been implemented comprehensively because they require removing subsidies from politically powerful constituencies that have organised their economic behaviour around subsidised input access. Every rupee of subsidy reform saves fiscal space that could fund development. Every rupee of untargeted subsidy that continues is a rupee not building a school, not training a nurse, not constructing a road. The question of who is getting the money and who is paying for it is ultimately a question about who Pakistan’s government actually serves. The subsidy data provides a clear, uncomfortable answer.

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Mehmood ul Hasan Qadir is an Economist and Financial Analyst based in Dubai, UAE. He writes on Pakistan’s economic structure, policy failures, and reform pathways for The Pakistan Ledger.