By Ijaz Kakakhel

The federal government has proposed total subsidies of Rs1.091 trillion for FY2026-27, down from the revised estimate of Rs1.157 trillion for FY2025-26 and lower than the original allocation of Rs1.186 trillion, according to budget documents available with Wealth Pakistan.

The proposed budget signals a significant reshaping of the government’s subsidy framework, reducing overall spending while redirecting resources toward export financing and housing initiatives.

Under the category of “Other Subsidies,” the government has allocated Rs205 billion for the next fiscal year compared to the revised allocation of Rs230.48 billion in FY2025-26.

One of the largest increases has been proposed for the mark-up subsidy supporting the phase-out of the State Bank of Pakistan’s refinancing facilities and the Export Finance Scheme (EFS). The allocation for this head has been raised sharply to Rs88 billion for FY2026-27 from Rs30 billion in both the original and revised budgets of FY2025-26.

The increase reflects the government’s intention to continue supporting exporters while facilitating the transition towards market-based financing mechanisms.

The government has also earmarked Rs71 billion for the PM Apna Ghar Program, indicating a renewed emphasis on affordable housing. In addition, Rs5 billion has been allocated for the Mera Pakistan Mera Ghar Scheme under a mark-up subsidy on housing finance, reviving support for homeownership initiatives.

At the same time, the government has ended several current housing-related subsidies, including funding for the Naya Pakistan Housing Authority.

Agriculture-related subsidies have been reduced under several heads. The wheat subsidy for Gilgit-Baltistan has been cut from Rs20 billion to Rs15 billion, while the subsidy on imported urea fertilizer has been reduced from Rs15 billion to Rs10 billion.

Similarly, the allocation for the Mark-up Subsidy and Risk Sharing Scheme for Farm Mechanization and the Kissan Package has been lowered from Rs7 billion to Rs5 billion.

Support for small and medium enterprises (SMEs) has also been scaled back. The subsidy for enhancing financing to the SME sector has been reduced significantly from Rs5.4 billion to Rs2 billion, while the allocation for the Refinance and Credit Guarantee Scheme under SME Asaan Finance remains unchanged at Rs1 billion.

Infrastructure-related subsidies have also faced reductions. The provision for gas schemes within a five-kilometre radius has been lowered from Rs3 billion to Rs1 billion, while the Metro Bus subsidy has been reduced from nearly Rs7 billion to Rs5 billion.

Meanwhile, several temporary allocations included in the revised estimates for FY2025-26 do not appear in the proposed budget for FY2026-27. These include Rs27.1 billion under the Prime Minister’s Austerity Fund and Rs100 billion allocated under its development component.

Economists believe the proposed subsidy profile reflects the government’s effort to ease fiscal pressures while prioritising export competitiveness and housing development. However, reductions in support for agriculture, SMEs and public transport may raise questions about the balance between fiscal consolidation and economic growth objectives.

The proposed allocations will now be reviewed by Parliament before the federal budget for FY2026-27 receives final approval.

Credit: INP-WealthPk