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Pakistan authorities did not consult with the International Monetary Fund (IMF) staff ahead of announcing their recent fuel subsidy proposal, the lender's resident representative said.

"The IMF is seeking greater details on the scheme in terms of its operation, cost, targeting, protections against fraud and abuse, and offsetting measures, and will carefully discuss these elements with the authorities," Esther Perez Ruiz told Business Recorder via message early Tuesday morning.

The IMF's statement comes after Prime Minister Shehbaz Sharif announced on Sunday that the low-income segment of the country will be given a fuel subsidy of Rs50 per litre as part of a new relief package.

Unfunded and untargeted subsidies are frowned upon by the IMF that instead advocates scaling up social protection for the most vulnerable.

In a press conference the next day, Minister of State for Petroleum Musadik Malik said the premier has in fact "ordered the difference between fuel prices paid by the affluent and poor income segments to be Rs100”, elaborating that the mechanism would be a cross subsidy that would be generated by raising fuel prices for the rich segment.

"As a general matter, the IMF sees strengthening support for those eligible for social assistance through the unconditional Kafalat cash transfer scheme as the most direct way to help the neediest in Pakistan," said Ruiz.

The development potentially means the staff-level agreement could still take some time as authorities remain engaged in talks with the IMF. The government has time and again expressed hope its bailout programme that has remained stalled at the ninth review since November last year would be revived soon.

Its recent negotiations with the IMF resulted in Pakistan imposing additional taxes, higher energy tariffs, a move back towards a market-based exchange rate, and a retreat from its position of unfunded subsidies.

The measures meant Pakistan completed almost all of the prior actions except for the external financing requirement the IMF wanted it to for clearing $1.1 billion in disbursements under the Extended Fund Facility that started in 2019.

A development on this front has not yet materialised.

The staff-level agreement

On the staff-level agreement, Ruiz said substantial progress has been made in discussions towards policies to underpin the ninth EFF review in recent days.

"At this point, ensuring there is sufficient financing to support the authorities in the implementation of their policy agenda is the paramount priority. A staff level agreement will follow once the few remaining points are closed," Ruiz told Business Recorder in a separate message.

Currently reeling from one of its worst economic crisis in history, Pakistan has been faced with a barrage of woes with a perceived default risk and downgrade by international ratings agencies reflecting the state of the economy that has also had to bear major political turmoil and frequent change in key leadership.

Its inflation has been tipped to go beyond 34%, shattering decades-old records, while its currency is getting weaker by the day.

The current account deficit has been tamed using extreme import controls, but foreign exchange reserves held with the central bank have only gotten a boost after loan inflows from China.

Bilal Memon

Bilal Memon is the Head of Digital Content at Business Recorder. His Twitter handle is @bilalahmadmemon


Comments are closed.

Abdullah Mar 21, 2023 09:12am
This is better.Charge the rich and give relief to poor andnif he can set a limit of 40km distance for a day .That will be better or the poor segment will buy cheaper petrol and sell it in the open market ti middle class.Us pakistanis will surely do it.
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Pakistani1 Mar 21, 2023 10:06am
Cannot seem to learn from own mistakes. sad.
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Junaid Mar 21, 2023 10:13am
Election time temporarily relief. Imf remind Pakistan they do not have any economy freedom to decide.
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MUHAMMAD Aquib Mar 21, 2023 10:29am
If a person is drawing salary of 125000 pm ,and using 1200cc car,how can you declare him rich to buy petrol @ 50 rs above market rate, With poor public transport infrastructure esp in Lahore ,
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Realist Mar 21, 2023 11:23am
This move is surely going to feed the already sky-high inflation. If diesel (which is used to transport all kinds of consumers goods) gets bumped up by rs. 100 per litre (around 30% increase on today's price), foodstuff as well as all other consumables will get more expensive as the price hike will get passed on, and the effect (as percentage of disposable income) will be more pronounced for the very class for which this measure is intended in the first place! We need to find workable solutions to the inflationary problem, not poorly thought out ones
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Muhammed Mar 21, 2023 11:28am
Old fools & dumb heads are again repeating the mistakes. Introduce E-20 petrol (20% Ethanol blended) for the 2-3 wheelers. India has been successfully practicing this & not only saving imports but is also utilising local resources.
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Muhammad Ali Mar 21, 2023 11:46am
The best solution is that illegal properties of anyone should be confiscated & sold to pay off public loans. The fake democrats should not be entrusted with right to rule this poor nation which is destroyed by design in last 50 years.
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Aamir Latif Mar 21, 2023 12:03pm
Ridiculous mind set of GoP and implement if possible, where in the world such disparity is created and in a country with poor management of financial control and perfect recipe of grossly to be explored by all under 800cc car or motorcycle. Better to reduce overall prices to improve consumption and revenues
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Love Your Country Mar 21, 2023 12:44pm
I have zero faith in the IMF, how quickly they have reacted!
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Tulukan Mairandi Mar 21, 2023 01:19pm
Another delay. Default imminent. Withdraw your money and take a boat to Europe, o Pakistanis
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Muhammad Kashif Mar 21, 2023 01:47pm
The shehbaz government is trying to make fools to both the public as well as the IMF. This move of the government will backfire. Ordinary Pakistanis will get nothing, on the other hand the IMF will become more strict towards Pakistan.
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Azam Mar 21, 2023 01:54pm
There should be subsided rate for tax fillers. I am tax filler n earn well mashallah but if i have done my part why should i suffer n buy expensive fuel. Its totally unpractical approach targeting 98% illiterate population to secure votes on expense of tax payers money
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Aamir Latif Mar 21, 2023 02:12pm
I am sure IMF will object, plys why publuc should be exposed to two pricing mechanism, on a flimsy basis... Anyway, its too late to save the sinking PDM and ship, more of PMLN
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Shiteistan Mar 21, 2023 02:33pm
In an undocumented country a controlled subsidy simply cannot be implemented. Mr Mussadiq's hair brained idea will create a booming money making racket for the fuel pumps and oil marketing companies. What an idiotic scheme. No wonder the IMF does not trust Pakis.
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Yousaf Hyat Mar 21, 2023 03:00pm
Weak management from top to bottom in IMF is giving lots of leverage to present Government to impose ridiculous conditions on economy and people. Ms Georgiva should curb this culture of careless dispersals . Wait for elections.
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Ch K A Nye Mar 21, 2023 04:41pm
@Love Your Country ,... So where is your faith placed? In the safe hands of disaster Dar?
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Ch K A Nye Mar 21, 2023 04:44pm
@Yousaf Hyat , The weakness is purely on the side of the Government who were desperately depending upon friendly countries for yet another bailout.
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Ash Chak Mar 21, 2023 09:23pm
The dual pricing of petrol and diesel is fraught with logistical complexities and doomed to fail. How do you stop someone from the low income group selling petroleum products in the black market?
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Aamir Latif Mar 23, 2023 12:17am
IMF requested to kill it, total nonsemce by incumbent GoP, totally impractical to have two standards of classes... plus another source of corruption and frauds
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TimeToMovveOn Mar 23, 2023 12:57am
@Ash Chak, There is no technical way to implement this. Poor people will just buy and sell it at a premium to the higher-priced buyers. This cannot even be implemented in advanced countries, and definitely not in Pakistan.
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