The government has accepted the need for a mini-budget if revenues do not meet expectations by the end of December 2025, according to the IMF. Photo: file
ISLAMABAD:
Pakistan has committed to the International Monetary Fund to raise fuel prices if no further savings can be identified to maintain current levels as inflation rose to a nearly one-and-a-half-year high of 7.3% last month, driven by increases in fuel, electricity and gas prices.
Sources told The Express Pakinomist that the IMF also imposed a new condition to increase the quarterly stipend under Benazir’s income support program by 35% to Rs19,500 from January next year to offset the impact of the rise in energy prices. But the quarterly increase of Rs.5,000. in the BISP payout cannot offset the impact on other income groups, especially lower to upper middle income groups.
The government sources told The Express Pakinomist that the assurance had been given to the IMF before a conditional agreement was reached at the staff level on disbursement of $1.2 billion loan tranches. The executive meeting is linked to the Federal Board of Revenue’s ability to generate Rs 322 billion. from the lawsuits.
The sources said the government informed the IMF that the petrol and diesel subsidy was “temporary” and would only continue until savings are identified in the budget.
Prime Minister Shehbaz Sharif has kept fuel prices steady after initially raising them by 20% soon after the Middle East conflict began. But the government still levied unreasonably high taxes on petrol, which is far more than the subsidy given by the government on the product.
In the case of high-speed diesel, the government was providing subsidies and the government was discussing the possibility of reducing taxes to maintain prices, the sources added.
The sources said the federal government informed the IMF that it was in discussions with the provinces to find more fiscal space to maintain fuel prices.
The Treasury has informed the global lender that it recognized that regular adjustment of fuel prices was important to suppress demand. Despite a 20% increase in fuel prices, there was no reduction in consumption last month because neither the people nor the government showed self-discipline.
But the Pakistani authorities told the IMF that, to avoid very expensive budget subsidies, they remained committed to allowing regular fuel price revisions unless further savings were identified and secured.
The lender was told the government saved Rs27 billion from a reduction in fuel allowances for official vehicles and a 20% cut in last quarter’s non-wage expenditure. Another Rs 100 billion was diverted from the federal development budget.
The government is in discussions with the provinces for an additional Rs 200 billion in fiscal space to continue with current prices. However, there is also a view within the government that some increase in prices should be passed on to consumers this Friday as a measure to curb demand.
Due to the Ministry of Oil’s better management of supplies, there is no shortage of fuel, but the Ministry of Finance is struggling to secure fiscal space as well as the provision of dollars.
Prices hit 17-month highs
Pakistan made the commitment days before the new inflation measure was reported by the national data collection agency.
The Pakistan Bureau of Statistics reported on Wednesday that inflation rose to 7.3% in March, the highest level in the past 17 months. However, it was still lower than the government’s expectations and also within the annual target range.
Food inflation fell further last month, but non-food prices escalated in both urban and rural areas. PBS said gas prices rose 23%, followed by an 18% increase in gasoline and 14% in electricity last month compared to the same period last year.
The non-food and non-energy inflation indicator also rose last month to 7.4% in urban areas and 8.4% in rural areas, according to PBS.
Pakistan has assured the IMF that it is prepared to raise interest rates provided the annual inflation rate slips beyond the target range of 7.5%.
However, any temporary slippage should not become the basis for raising interest rates, which could slow down the economy further.
BISP recipients
The sources said that to offset the impact of future price hikes on the poor segments, the IMF has asked the government to increase the cash distributions being distributed among the 10 million BISP beneficiaries. They said the number of beneficiaries would also be increased by 200,000 in June this year to 10.2 million.
The sources said an understanding has been reached between the federal government and the IMF to increase the unconditional cash transfer amount from Rs14,500 to Rs19,500 starting January 2027. They said increasing the amount to Rs19,500 was the new condition imposed by the IMF.
The increase would be sufficient to offset the inflationary effect and also take the handouts close to 15% of the cost of staple foods consumed by the lowest income groups, the sources added.
The sources said that as part of the conditional transfers, about 700,000 more beneficiaries will be added in the pool under the health and education schemes and another 200,000 in nutrition programs run through BISP.
Prime Minister Shehbaz Sharif has already asked the BISP management to distribute money among the beneficiaries through banking channels to avoid hassles.
