Pakistan ends fuel relief scheme on IMF’s anti-subsidy demands?
Fuel relief scheme
The International Monetary Fund (IMF) has called for an end to the fuel relief scheme and urged Pakistan to replace broad subsidies with targeted assistance. Differences between Pakistan and the IMF remain over fuel relief and the gas sector’s circular debt.
Sources said the two sides are still at a deadlock over petrol prices and around Rs1.4 trillion in receivables owed to gas companies. The dispute is part of ongoing discussions between the government and the IMF.
Govt resists immediate end to relief
The IMF believes it would be difficult to continue the fuel relief scheme beyond its initial three-month period. The government, however, has decided not to immediately end the scheme for motorcycle and small-car owners.
The government has also shared a detailed estimate of the petrol price with the IMF. According to the estimate, imported petrol costs around Rs250 per litre, while consumers pay about Rs390 per litre.
Taxes and margins add to petrol price
The final petrol price includes taxes and different margins in addition to the import cost. These charges increase the amount consumers pay at the pump.
The government is trying to explain the pricing structure during discussions with the IMF. The details are also important as both sides consider the future of fuel relief.
Fuel scheme cost may cross Rs75 billion
Sources said the actual cost of the three-month fuel relief scheme could exceed Rs75 billion. The IMF has raised concerns about the financial impact of continuing broad fuel subsidies.
The lender has asked Pakistan to use a targeted assistance system instead of fuel subsidies or cross-subsidies. Such a mechanism would focus relief on people considered eligible for support.
Gas circular debt remains another issue
The fuel relief dispute is taking place alongside discussions about the gas sector’s circular debt. Around Rs1.4 trillion in receivables owed to gas companies are also part of the unresolved issues.
The government and the IMF will need to find a way forward on both fuel relief and the gas sector. The outcome could affect the cost of fuel and the government’s spending on relief measures.
The main disagreement is over how fuel relief should be provided and how much it should cost the government. The IMF is seeking targeted support, while the government has not agreed to immediately end relief for motorcycle and small-car owners.
The possible cost of more than Rs75 billion makes the issue financially important. Any final decision could influence both government spending and the support available to fuel consumers.
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