Tag: cross-fuel subsidy

  • Proposed cross-fuel subsidy plan fails to impress IMF, causing delays in bailout program

    Proposed cross-fuel subsidy plan fails to impress IMF, causing delays in bailout program

    In a bid to fulfil promises made to the International Monetary Fund (IMF), the Ministry of Finance is prepared to strongly oppose a draft summary proposed by the Ministry of Petroleum on the provision of cross-fuel subsidy.

    The proposed subsidy would involve increasing petroleum product prices by Rs75 per litre for all vehicles with engines of 1,000cc or more, in order to subsidize petrol for vehicles of 800cc and motorbikes. The draft summary was circulated among different ministries for comments before the upcoming Economic Coordination Committee meeting.

    An official from the finance ministry stated that the petrol scheme was still at the draft stage, and the ministry was preparing its comments and consulting with the IMF. The official recalled that a similar scheme had been proposed during the Pakistan Tehreek-e-Insaf (PTI) government but could not be implemented.

    Former finance minister Miftah Ismail had also allocated Rs48 billion on account of the Sasta Petrol Scheme in the last budget, but these resources were diverted towards flood-affected areas. The official added that such a scheme could not be implemented transparently in Pakistan, and the ministry would send its official comments soon.

    In March, Prime Minister Shehbaz Sharif announced the government’s plans for fuel pricing. While economists warned the decision could hinder a crucial IMF payout needed to prevent economic collapse, the government said that it was a scheme, not a subsidy.

    The IMF officials were quick to share that the Pakistani government did not consult the global lender on its petrol subsidy for low-income groups before the announcement. The Fund has asked the Pakistani authorities to provide more details about the petrol relief package causing more delay in the signing of the staff-level agreement.

    Pakistan has been trying to convince the Washington-based lender to release the next tranche of the bailout programme since the IMF funding stalled in November, hit by snags over fiscal policy adjustments after officials of the lender visited Islamabad in February for talks. They formed part of a ninth review exercise on a bailout package of $6.5 billion agreed upon in 2019 whose resumption is critical for Pakistan to avoid risking default on external payment obligations.

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  • Pakistan’s petrol relief proposal fails to convince IMF, causing further delays

    Pakistan’s petrol relief proposal fails to convince IMF, causing further delays

    The International Monetary Fund (IMF) has asked Pakistani authorities to provide additional information about a petrol relief package, which has caused further delays in the signing of a staff-level agreement.

    The petroleum ministry’s cross-fuel subsidy proposal was initially rejected by the Fund, which argued that more details are needed to verify its sustainability.

    The Ministry of Finance has distanced itself from the plan, which was announced without the IMF review mission’s knowledge, and has advised the Ministry of Petroleum to withdraw the proposal and work with the Ministry of Finance to iron out the policy details before approaching the IMF for the next review.

    According to The News, Minister of State for Finance, Dr Aisha Ghaus Pasha, has reportedly called the petrol subsidy plan “not workable” and clarified that there is no suggestion of subsidies on petroleum products. The Petroleum Division had suggested cross-subsidies on petroleum products, which is not feasible, she said.

    The talks with the IMF are ongoing, with the only remaining issue being the lender’s confirmation of external financing from bilateral countries, including Saudi Arabia and the UAE, which is currently underway.

    Pasha indicated that financial assistance is expected from bilateral friends soon, which will help finalize the staff-level agreement with the IMF.

  • Pakistan awaits financial support confirmation from Saudi Arabia and UAE to sign IMF agreement

    Pakistan awaits financial support confirmation from Saudi Arabia and UAE to sign IMF agreement

    The signing of the staff-level agreement (SLA) between Pakistan and the International Monetary Fund (IMF) is dependent on confirmation of financial support from the Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE). Once support confirmation is received from KSA and UAE, the SLA will be signed with the IMF.

    Finance Minister Ishaq Dar reportedly informed diplomats in Islamabad at an Iftar dinner on Sunday that the issues with the IMF will be settled soon. However, it has been 46 days since the IMF and Pakistan concluded review talks in Islamabad on February 9, and the staff-level agreement is yet to be secured.

    There have also been dissenting views within the Finance Ministry on the issue of cross-fuel subsidy. While some bureaucrats from the ministry have opposed the scheme, the government went public with it, which has caused concern.

    Officials who spoke on the condition of anonymity told The News, that such schemes would jeopardize the revival of the IMF program, and it remains to be seen how the ministry will satisfy the global lender on the subsidy. The status of the 10th and 11th reviews, which were due on February 3 and May 3, respectively, is also unknown at this time, even if the IMF program is revived.

    The situation highlights the importance of financial support from KSA and UAE to Pakistan, as well as the potential impact of domestic policy decisions on the country’s relationship with the IMF. Despite Finance Minister Dar’s assurances, it is unclear when the SLA will be signed, and how the subsidy issue will be resolved.

    As the reviews remain in question, the situation underscores the need for Pakistan to address economic challenges and seek support from its allies to maintain its financial stability.