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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