IMF 'opposes' fuel subsidies in Pakistan: Report

The International Monetary Fund (IMF) has opposed fuel subsidies or cross-subsidies in Pakistan, making it clear to the government that the fuel relief scheme cannot be extended beyond three months.

According to sources, differences remain between Pakistan and the IMF on several issues, including the exchange rate and interest rates, during ongoing negotiations.

The IMF has stressed the need for a market-based exchange rate in Pakistan and recommended keeping monetary policy tight to control inflation.

IMF officials have opposed providing fuel or cross-subsidies and instead proposed targeted subsidies for eligible people, similar to the Benazir Income Support Programme.

Sources said a deadlock also persists between the government and the IMF over petrol prices and Rs1.4 trillion in receivables owed by gas companies.

However, the government has decided not to immediately end the fuel relief scheme for motorcycles and small vehicles.

The IMF has said that the fuel relief scheme cannot be extended beyond three months and that the actual cost of a three-month fuel subsidy could exceed Rs75 billion.

The Pakistani negotiating team has presented the IMF with a detailed cost breakdown of petrol prices. It informed the Fund that imported petrol costs around Rs250 per litre, while consumers are paying Rs390 per litre.

Petrol carries taxes of approximately Rs110 per litre, along with various margins amounting to around Rs27 per litre.

According to sources, the IMF has also expressed concerns over the proposed waiver of Rs1.4 trillion in receivables owed to gas companies. The circular debt in the gas sector has reached Rs3.6 trillion.

Sources said the IMF had reservations about a proposal to settle the debt through Rs850 billion in profits generated by gas companies. A detailed meeting on the administrative plan for managing circular debt in the gas sector is expected next week.

Sources further said that agreement had not been reached with the IMF on two key issues concerning the petroleum sector. However, the IMF has appreciated reforms in the gas sector and efforts to reduce gas theft.

Negotiations between Pakistan and the IMF on the economic review are continuing.