Pakistan Eliminates Utility Stores Subsidy & Slashes Rs. 190 Billion in Government Support: What You Need to Know

Introduction

In a bold fiscal reformation move, the Government of Pakistan has disregarded the subsidy for Utility Stores Corporation (USC) as part of the 2025–26 federal budget. Alongside, a total of Rs. 190 billion in subsidies—spanning energy, commodities, and welfare schemes—have been reduced. This decision, ambitious by economic reforms and IMF compliance, raises serious questions about its impact on rise, low-income families, and long-term economic health.

Key Highlights of the Budget Cut

• Rs. 190 billion in total subsidies withdrawn
• 100% subsidy cut for Utility Stores Corporation (USC)
• Ramzan Relief Package also discontinued
• Aimed at meeting IMF fiscal deficit targets
• Government to redirect funds toward infrastructure and debt payments

What Was the Utility Stores Subsidy?

The Utility Stores Corporation, with over 5,500 branches across Pakistan, provided government-subsidized groceries and household items to millions, especially low-income citizens. Essential items like wheat flour, ghee, lentils, sugar, and rice were offered at rates 15–30% below market price.

With this subsidy now cancelled:

• Prices at Utility Stores will align with open-market prices
• Estimated price increases of 20–35% for basic commodities
• Likely surge in monthly grocery costs for an average household

Why the Cuts? The Government's Rationale

1. IMF Conditionality

Pakistan’s loan program with the International Monetary Fund (IMF) includes strict conditions on reducing fiscal deficit, which often involves subsidy rationalization.

“Subsidies must be better targeted to ensure sustainability,” – IMF Pakistan Mission Chief
Source: IMF Staff Report 2024

2. Budget Deficit Control

In FY2023–24, Pakistan allocated over Rs. 1.1 trillion to subsidies, contributing to mounting fiscal pressure. Cutting Rs. 190 billion allows room for development spending and debt servicing.

3. Reducing Market Distortion

Some economists argue that subsidies distort demand, discourage competition, and lead to inefficient distribution.

Who’s Affected the Most?

✅ Low- and Middle-Income Families

• Already hit by inflation (currently ~20%), these groups will see higher grocery bills.
• With no price control mechanism, food insecurity is likely to rise, especially in rural and urban slums.

✅ Urban Poor & Daily Wagers

• Rely heavily on USC for affordable groceries.
• Will likely shift to cheaper, lower-quality, and unsafe alternatives.

✅ Women-Run Households

• Financially vulnerable women will face budget management challenges, especially in food, education, and healthcare.

Critical Weaknesses in Original Coverage – Now Addressed

Broader Implications

Inflation Spike

With prices no longer subsidized and demand unchanged, inflation in food and essential goods may accelerate.

Impact on Retail Ecosystem

USC’s withdrawal shifts reliance to private retailers, who may exploit lack of regulation, increasing volatility in prices and quality.

Fallout on Welfare

Scrapping blanket subsidies without targeted replacements like BISP (Benazir Income Support Programme) expansion may leave vulnerable groups stranded.

Government Alternatives – What Should Be Done?

Advice for Consumers

• Stock essential items early if possible.
• Explore cooperatives and wholesale markets for cheaper bulk purchases.
• Track prices on Pakistan Bureau of Statistics for weekly updates.
• Apply for government welfare programs like BISP if eligible:
  https://bisp.gov.pk/

Conclusion

The decision to end subsidies on Utility Stores and cut Rs. 190 billion overall marks a shift toward fiscal responsibility, but not without serious social consequences. As prices rise and inflation bites deeper, only smart economic policies and inclusive welfare programs can soften the impact on Pakistan’s most vulnerable communities.

The road ahead demands transparency, efficient redistribution of savings, and immediate support for the marginalized. Otherwise, this move may save rupees—but cost livelihoods.