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Business & Finance

Experts predict hike in inflation as Pakistan agrees to roll back fuel subsidy

  • Inflation could rise from 12% to over 15%, says analyst, as Islamabad looks to revive IMF programme
Published April 26, 2022

Pakistan's decision to roll back fuel subsidies as it seeks to revive the International Monetary Fund (IMF) Extended Fund Facility (EFF) could mean a spike in the country's inflation rate, which is already soaring.

The IMF said Islamabad has agreed to roll back subsidies to the oil and power sectors that were introduced by the previous government, ahead of a resumption next month of a review of the Fund's support for the country.

Due to this, "the inflation rate is expected to rise from the current 12% to above 15%. The common man would have to bear the brunt of this hike in the coming weeks and months,” Uzair Younus, Director of Pakistan Initiative at the Atlantic Council's South Asia Center, said while talking to a private news channel.

“Whether its petrol prices, electricity rates or the overall inflation, it will rise, which will be a test for the new government of Prime Minister Shehbaz Sharif,” he said.

Similar sentiments were shared by economist Ammar H Khan, who said that the rise in inflation will push up oil prices, which will push up rates of other commodities.

But Khan said the new government made the right decision of approaching the IMF straight away, unlike its predecessors.

“The government sought to increase the duration and the amount of the IMF programme. The amount of loan has been raised because our import has increased a lot, and that is not due to increase in quantity but due to commodity supercycle in the international market,” said Khan.

He added that the IMF will accept Pakistan's request of enhancing the duration and loan amount.

Govt seeks increase in size, duration of IMF programme

Earlier, Nathan Porter, IMF Mission Chief for Pakistan, issued a statement stating the fund "agreed that prompt action is needed to reverse the unfunded subsidies which have slowed discussions for the 7th review. Based on the constructive discussions with the authorities in Washington, the IMF expects to field a mission to Pakistan in May to resume discussions over policies for completing the 7th EFF review.

“The authorities have also requested the IMF to extend the EFF arrangement through June 2023 as a signal of their commitment to address existing challenges and achieve the program objectives."

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