Pakistan is moving ahead with a broad subsidy reform that will link future electricity and gas subsidies to the Benazir Income Support Programme (BISP), aiming to improve targeting, reduce inefficiencies, and help address circular debt, according to the World Bank’s latest regional assessment. The announcement comes as part of the Bank’s report, South Asia Development Matters: From Risk to Resilience, which highlights regional approaches to social protection and fiscal management.
The reform is expected to significantly alter the composition of social protection spending as a percentage of GDP while improving delivery to vulnerable households. By tying energy subsidies to BISP, Pakistan seeks to ensure that assistance reaches those most in need, while simultaneously freeing fiscal space to address long-standing challenges in the power sector. The World Bank noted that fossil fuel subsidies in South Asia remain highly distortionary, amounting to around 1 percent of GDP in India and even higher levels in countries such as Pakistan. Redirecting this spending toward targeted social protection programs is seen as a strategy to strengthen the resilience of vulnerable populations.
According to the report, Pakistan has made notable progress in enhancing the design and delivery of BISP. Proxy means testing has been used to accurately identify poor households, while cash transfers are complemented by health and education interventions to improve the overall impact of social protection. Investments in digital delivery systems have further enhanced accessibility, transparency, and responsiveness, enabling faster and more reliable support to eligible families.
The World Bank highlighted Pakistan and the Maldives as leading countries in South Asia for dynamic inclusion mechanisms within their social protection systems. During the COVID-19 pandemic, Pakistan leveraged its self-registration option and robust social registry to launch an emergency cash program. This initiative provided one-time financial assistance to approximately 12 million vulnerable or newly poor households through a fully automated, data-driven process, demonstrating the effectiveness of integrated digital systems in crisis response.
In addition to linking energy subsidies with BISP, Pakistan is establishing a Climate Risk Facility to provide contingent credit and liquidity support to the microfinance sector. The facility aims to help micro and small businesses recover from flood-related shocks while encouraging climate adaptation in partnership with agricultural technology firms. Such initiatives are designed to improve financial resilience and adaptive capacity for vulnerable populations, particularly in rural areas dependent on agriculture and small enterprises.
The World Bank emphasized that Pakistan’s approach to subsidy reform and social protection integration represents a significant step toward sustainable fiscal management and enhanced social safety nets. By reducing distortions in energy subsidies and redirecting resources to targeted cash transfers, the country can simultaneously improve economic efficiency, reduce fiscal strain, and provide meaningful support to households at risk of poverty or climate-related shocks.
The integration of electricity and gas subsidies with BISP, along with complementary initiatives like the Climate Risk Facility, underscores Pakistan’s commitment to modernizing social protection systems, enhancing financial inclusion, and building resilience against economic and environmental shocks. The World Bank’s assessment reflects optimism about Pakistan’s progress and the potential for these reforms to deliver both fiscal sustainability and social impact.
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