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Before Closing the Deal, Pakistan’s new Fuel Subsidy Programme must be Approved by the IMF

Pakistan is on the verge of signing a much-anticipated loan agreement with the International Monetary Fund (IMF) for $1.1 billion, pending the resolution of a few outstanding issues, including a proposed fuel pricing scheme.

The coalition government and IMF started negotiating in February with the goal of releasing the critical funds to Pakistan, a nation of 220 million people suffering from severe economic hardship. The poor were severely impacted by Pakistan’s high inflation rate in February, which was the highest in 50 years.

A stumbling block in the negotiations has been Prime Minister Shehbaz Sharif’s suggestion that wealthy consumers pay more for fuel in order to subsidise prices for the underprivileged.

Although the IMF’s resident representative in Pakistan, Esther Perez Ruiz, claimed that the government did not consult with the IMF about the fuel pricing scheme, Petroleum Minister Musadik Malik has been given six weeks to develop the pricing plan.

Ruiz stated that after the few outstanding issues, such as the fuel scheme, are resolved, a staff-level agreement would be signed. The IMF, however, is asking the government for more information regarding the fuel proposal, including how it would be put into effect and what safeguards would be put in place to prevent abuse.

Pakistan is eagerly awaiting the IMF agreement to receive a $1.1 billion tranche from a $6.5 billion bailout package agreed upon in 2019. Pakistan currently only has enough foreign reserves to cover four weeks’ worth of necessary imports.

The government has implemented a number of fiscal measures in advance of the agreement, including devaluing the rupee, eliminating subsidies, and raising energy prices.

Earlier this week, the government unveiled its plan for a recently announced programme to help the poor with their fuel costs. The programme, which will be implemented in three phases, will provide assistance of up to Rs. 50 per litre.

The programme is intended to target the approximately 20 million motorcycles and rickshaws (with a cap of 21 litres of fuel) and 1.36 million small vehicles (with a cap of 30 litres of fuel) that are currently in use throughout Pakistan.

With the use of differential pricing, the programme will charge the “rich” an extra Rs102 per litre while giving “poor” consumers relief of up to Rs50, resulting in prices of Rs250 for the “poor” and Rs352 for the “rich.” A fuel card and an e-discount through OTP will be used as the program’s two implementation models.

The National Database and Registration Authority, the Oil & Gas Regulatory Authority, oil marketing firms, and the National Bank of Pakistan are some of the various actors involved in the plan, and the Ministry of Energy’s Petroleum Division will be in charge of overseeing their functions.

Finally, Pakistan’s government is hoping that the loan agreement with the IMF will be signed soon, enabling the nation to receive crucial funds to stabilize its economy.

The proposed fuel pricing plan, which aims to aid the poor, is still being negotiated, and the IMF has asked for more information before agreeing to the terms. Millions of struggling consumers across the country are anticipated to receive relief from the fuel relief program’s three-phase implementation plan.

Written by Imad Khan

Imad Khan has the skills and experience to deliver top-notch content that informs, engages, and inspires. He oftens explores nature in his free time.