Subsidies With Benazir Income Support Programme

Pakistan is preparing a major shift in how electricity and gas subsidies are distributed by linking them with the Benazir Income Support Programme. According to the World Bank, this reform is designed to improve targeting, reduce waste, and help address the long-standing issue of circular debt in the power sector. The move represents a transition from broad-based subsidies to a more focused social protection approach.

By aligning subsidies with BISP, the government aims to ensure that financial support reaches households that truly need it. The World Bank views this reform as a step toward better use of public funds while strengthening social protection spending as part of the national budget.

• Subsidies to be linked with BISP eligibility
• Focus on better targeting and efficiency
• Reform aimed at easing fiscal pressure

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Why Pakistan Is Reforming Power and Gas Subsidies

Current electricity and gas subsidies in Pakistan are widely considered inefficient because they benefit a broad population instead of focusing on low-income households. This approach has contributed to financial stress in the power sector and added to the accumulation of circular debt over time.

The World Bank has pointed out that such untargeted subsidies distort prices and strain public finances. Reforming them allows Pakistan to redirect resources toward more effective social protection measures that provide direct relief to vulnerable groups.

• Existing subsidies are poorly targeted
• Power sector inefficiencies add to circular debt
• Reform seeks better use of limited resources

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Role of BISP in the Subsidy Reform Framework

The Benazir Income Support Programme plays a central role in the new subsidy framework. BISP uses proxy means testing to identify low-income households and provides cash assistance along with health and education-related interventions to improve long-term outcomes.

With improved digital systems and better programme design, BISP is well positioned to manage targeted subsidies. Linking power subsidies with BISP allows the government to rely on an established database instead of creating a new system from scratch.

• Proxy means testing identifies deserving families
• Digital systems improve access and delivery
• BISP combines cash support with social outcomes

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World Bank’s View on Fossil Fuel Subsidies in South Asia

The World Bank has highlighted that fossil fuel subsidies remain a major issue across South Asia. In India, these subsidies amount to about 1 percent of GDP, while in Pakistan and several neighboring countries, the share is even higher, increasing fiscal risks.

According to the report, these funds could be better spent on social protection programs that help people cope with economic instability and climate-related shocks. Pakistan’s reform aligns with this regional recommendation.

• Fossil fuel subsidies distort energy prices
• Higher subsidy burden in Pakistan than India
• Resources can support social protection instead

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How Linking Power Subsidies With BISP Improves Targeting

Connecting subsidies with BISP improves targeting by ensuring that only eligible households receive financial relief. This approach reduces leakages and limits the benefit received by higher-income users who do not require support.

The reform also changes the composition of social spending as a share of GDP. Instead of broad subsidies, Pakistan will focus on targeted assistance that strengthens household resilience during economic stress.

• Support directed to low-income households
• Reduced misuse of subsidy funds
• Improved efficiency of public spending

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Pakistan’s Progress in Social Protection Systems

The World Bank noted that dynamic inclusion mechanisms are rare in South Asia, but Pakistan stands out. The country has developed a comprehensive social registry that allows households to self-register, improving access to support programs.

Investment in digital delivery systems has made social protection more responsive and scalable. These improvements make it easier to align new subsidy policies with existing welfare programs.

• National social registry in place
• Self-registration options for beneficiaries
• Digital systems enhance responsiveness

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BISP Emergency Cash Programme During Covid-19

During the Covid-19 pandemic, Pakistan launched an emergency cash program under BISP that the World Bank described as a regional first. The initiative used automated, data-driven methods to deliver one-time assistance efficiently.

The program supported around 12 million vulnerable or newly poor families. It demonstrated how strong data systems can enable rapid response during national crises.

• Automated and data-driven disbursement
• Support reached 12 million families
• Model praised at the regional level

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Need for Stronger Funding and Information Systems

The World Bank emphasized that stronger funding arrangements are essential for sustaining effective social protection systems. Reliable financing ensures that programs can scale up quickly during emergencies without delays.

Improved information systems also play a key role by enhancing targeting accuracy and enabling faster decision-making. Together, these elements strengthen the overall impact of subsidy and welfare reforms.

• Sustainable funding improves reliability
• Data systems enhance targeting accuracy
• Faster scale-up during crises

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Water Stress and Agricultural Risks Highlighted by the World Bank

Beyond subsidies, the report warned about severe water stress in Pakistan. Groundwater levels are declining, particularly in lowland and plains areas, increasing the risk of droughts for farmers.

Agriculture consumes more than 90 percent of Pakistan’s freshwater, especially in Punjab. Inefficient irrigation and outdated practices have reduced water availability and farm productivity.

• Pakistan among most water-stressed countries
• Groundwater depletion increasing drought risk
• Agriculture uses majority of freshwater

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Punjab Irrigated Agriculture Productivity Improvement Project

The World Bank-financed Punjab Irrigated Agriculture Productivity Improvement Project was cited as an effective response to water challenges. The project upgraded water channels and introduced high-efficiency irrigation systems.

These measures reduced water losses and improved crop yields significantly. The project showed how targeted investment can improve resilience and productivity in agriculture.

• Improved irrigation infrastructure
• Introduction of water harvesting ponds
• Promotion of land leveling services

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Key Outcomes of World Bank–Backed Initiatives

The table below summarizes the key outcomes of the Punjab irrigation project highlighted in the report.

Outcome Area	Measured Impact
Water savings	57 percent reduction in losses
Cereal yields	Increase of 14 to 31 percent
Water efficiency	Improvement of 9 to 45 percent

Another table outlines the core elements of Pakistan’s subsidy reform approach.

Reform Element	Expected Benefit
BISP linkage	Better subsidy targeting
Digital systems	Faster and accurate delivery
Funding reforms	Improved crisis response

FAQs

What does linking power subsidies with BISP mean?
It means future electricity and gas subsidies will be given only to households eligible under the Benazir Income Support Programme.

Why is Pakistan changing its subsidy system?
The reform aims to reduce inefficiencies, control circular debt, and ensure support reaches low-income families.

How does BISP identify eligible households?
BISP uses proxy means testing and a national social registry to determine household eligibility.

What role did BISP play during Covid-19?
BISP delivered emergency cash assistance to about 12 million vulnerable families using an automated system.

Why did the World Bank discuss water issues in the report?
Water stress threatens agricultural productivity, and improved irrigation is essential for long-term economic resilience.

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