ISLAMABAD: Pakistan is undertaking a comprehensive subsidy reform, linking future electricity and gas subsidies with the Benazir Income Support Programme (BISP) to improve targeting, reduce inefficiencies and circular debt, and alter the composition of social protection spending relative to GDP, says the World Bank.
The Bank in its latest report “South Asia development matters, from risk to resilience”, stated that distortionary subsidies for fossil fuels, which amount to 1 percent of GDP in India and more in Bangladesh, Maldives, and Pakistan, could be redirected to programs that strengthen the adaptative capacity of vulnerable populations, such as social protection.
It further stated that governments can improve tax administration and broaden the tax base by eliminating loopholes, streamlining tax codes, strengthening enforcement, and facilitating compliance. Introducing pollution pricing could also boost revenues while simultaneously addressing the region’s high pollution levels.
READ MORE: Targeted power subsidies under BISP: Roadmap submitted to IMF, World Bank
The Bank stated that in Pakistan, the Climate Risk Facility currently being established will provide similar contingent credit and liquidity support to the microfinance sector, helping micro- and small businesses recover from flood disasters while simultaneously incentivising climate adaptation measures through partnerships with agricultural technology companies.
It also noted that Pakistan is implementing a comprehensive subsidy reform aimed at reducing inefficiencies and addressing circular debt. The subsidy reform is expected to align any future electricity and gas subsidies with the BISP, Pakistan’s flagship social protection program, to improve targeting efficiency. These reforms are expected to change the composition of social protection expenditure as a percentage of GDP.
BISP — a social assistance program that reduces poverty and improves human capital outcomes by (1) using proxy means testing scores to identify poor households and (2) complementing cash transfers with behavioural change elements focused on health and education. BISP has improved program design and invested in a digital delivery system to increase accessibility and responsiveness to the needs of its target population.
Dynamic inclusion mechanisms, or providing assistance to anyone in need at any time, as well as mechanisms for quickly adjusting coverage and benefit amounts to circumstances, are rare in South Asia. Maldives and Pakistan are the exceptions, because both provide a self-registration option, and Pakistan has also developed a well-established social registry. Pakistan’s BISP emergency cash program—a regional first—used an innovative, fully automated, and demand- and data-driven approach during the COVID-19 pandemic to provide one-time financial aid to about 12 million vulnerable or newly poor families.
Stronger funding and information systems that improve targeting and speed up scalability would help make South Asia’s social protection systems more effective in supporting resilience.
The report also stated that groundwater levels are receding in lowland and plains areas in India and Pakistan, exposing farmers to the negative effects of increasingly frequent droughts. Effectively functioning irrigation infrastructure and improved water management are key adaptation actions to improve resilience in the region.
With groundwater pricing a rarity, there is often little incentive for users to apply water-saving practices; this results in highly inefficient water use. Where groundwater pricing exists, such as in Pakistan, current approaches are skewed against smallholder farmers and in favour of large landowners. Reforming water pricing regimes—for example, by switching from flat area-based fees to water-volume-based fees or by charging for electricity for pumps that is currently free—would provide incentives to adopt water-saving practices. Revenues could also help to cover the cost of operation and maintenance of irrigation infrastructure.
Pakistan is one of the most water-stressed countries in the world, with agriculture consuming over 90 percent of its available freshwater resources. In Punjab, the country’s most productive agricultural region, inefficient irrigation practices, excessive groundwater extraction, and outdated farming techniques have led to significant water losses, declining water availability, and reduced farm productivity.
To address these challenges, the World Bank–financed Punjab Irrigated Agriculture Productivity Improvement Project was launched to enhance water productivity, promote modern irrigation technologies, and encourage a transition to high value, water-efficient crops. The program improved water channels, installed high-efficiency irrigation systems, constructed water harvesting ponds, and provided land-levelling services.
These interventions reduced water losses in irrigation, improved resilience by storing rainwater for availability during dry periods, and reduced runoff, increasing irrigation efficiency.
A 40:60 cost-sharing mechanism between farmers and the government encouraged the adoption of modernized irrigation systems and improved cost-effectiveness.
The project resulted in water savings of 57 percent, increased cereal yields by 14–31 percent, and raised the total water efficiency of production by 9–45 percent, it added.
Copyright Business Recorder, 2026
Comments