-Finance Minister announces increase in POL prices by Rs30
-Petrol will cost Rs179.86 per litre, diesel Rs174.15 per litre
-Decision comes after IMF linked $3 billion loan tranche with removing POL subsidies
-Need tight monetary policy, suggests Miftah
By Anzal Amin
ISLAMABAD: Finance Minister Miftah Ismail announced Thursday a massive hike in the price of petroleum products after the International Monetary Fund (IMF) emphasised abolishing the subsidies on the commodities.
In a press conference, the finance minister said the government has decided to hike the price of petrol, diesel, kerosene oil, and light diesel by Rs30, effectively from 12:00 AM on May 27 (today).
New prices (per litre): Petrol — Rs179.86; Diesel — Rs174.15; Kerosene oil — Rs155.56; Light diesel — Rs148.31.
The finance minister noted some burden was shifted on the masses, but despite the massive increase in the price of petroleum products, the government was still bearing losses, but vowed to soon strike a staff-level agreement with the Fund.
Pakistan and the IMF could not reach a staff-level agreement a day earlier after the Fund said there were deviations from the policies that were agreed between both sides. The PTI-led government had originally agreed to the IMF’s demand of raising the price of electricity and petroleum products but, later in March, Imran Khan announced subsidies on both commodities — and the current government was continuing with the same arrangement.
The finance minister noted that following the decision to hike the prices, financial markets would witness stability, the rupee would strengthen, and the economy would get a boost.
In response to a question, Ismail said due to an increase in the price of petroleum products, inflation would definitely witness an increase. “But tell me, what option did we have instead of taking this step.” Ismail said Khan — going against the IMF deal — had announced subsidies on petroleum products when his government’s tenure was coming to an end.
“We are all the owners of a country. How can we afford [such subsidies] that are costing three times more than running the everyday affairs of the governments,” the finance minister said.
Ismail said it was an injustice to the lower-income segment of the society that the people who own cars, industries, and generators, are getting subsidies.
“Indeed, this is the failure of the government that inflation is rising but we have provided subsidies on commodities at utility stores and are making sugar available at a lesser cost than Imran Khan’s government,” he said.
Ismail said increasing the price of petroleum products by Rs30 was not an easy decision for Prime Minister Shehbaz Sharif, but vowed that the incumbent government would take steps to safeguard the economy.
Quoting Defence Minister Khawaja Asif, Ismail said: “Khawaja Asif sahab, in today’s talks, noted that it would not be a wise decision to [damage] the state and save our politics.”
The finance minister stressed that the present government would present the fiscal budget for FY2022-2023 and ruled out the formation of a caretaker government, noting that the current set-up would complete its tenure.
Earlier, Miftah Ismail said on Thursday that “we would need to have a tight monetary policy and consolidate our fiscal position” after he returned from Doha following the conclusion of the latest week-long round of talks with the International Monetary Fund.
The talks, held in Doha, were aimed at reaching an agreement on policies at the conclusion of the IMF’s seventh review of its $6 billion programme for Pakistan, which has been stalled since early April.
Ismail said the IMF and Pakistan discussed targets for FY23, where, in light of high inflation, declining forex reserves and a large current account deficit, we would need to have a tight monetary policy and consolidate our fiscal position. “Thus government is committed to reducing the budget deficit in FY23,” he added.
The IMF has made the resumption of the programme conditional on the reversal of fuel and energy subsidies introduced by the previous PTI government, which have been criticised and termed unsustainable by many, including the PML-N and others who are part of the incumbent coalition goverment.
Ismail said the IMF team emphasised the importance of “rolling back” fuel and power subsidies, which were given by the previous administration in contravention of its own agreement with the Fund. “The government is committed to reviving the IMF programme and put Pakistan back on a sustainable growth path.”
Following the talks, the Finance Division said in a statement the IMF emphasised the “importance of rolling back fuel and power subsidies, which were given by the previous administration in contravention of its own agreement with the Fund”.
“The IMF expressed concern on the fiscal and current account situation arising from the government’s actions, especially electricity and fuel subsidies and slippages,” it said.”The meetings identified the areas of divergence and corrections required in the current account and fiscal deficit.”
The Finance Division said the consultations, which began on May 18, “reviewed [the] fiscal and monetary situation for FY2022 and proposed measures for FY2023”.
It added that the government remained committed to reducing the overall budget deficit in FY2023, reviving the IMF programme and putting “Pakistan back on a sustainable growth path”.
On Wednesday, the IMF had shared similar details about the meeting in a statement and “emphasised the urgency of concrete policy actions, including in the context of removing fuel and energy subsidies and the FY2023 budget, to achieve programme objectives”.
According to the IMF, the mission held “highly constructive discussions” with the Pakistani authorities, during which considerable progress was made on various matters, including on the need to continue to address high inflation and the elevated fiscal and current account deficits while ensuring adequate protection for the most vulnerable.
“In this regard, the further increase in policy rates implemented on May 23 was a welcome step. On the fiscal side, there have been deviations from the policies agreed upon in the last review, partly reflecting the fuel and power subsidies announced by the authorities in February,” it said.
The PTI had announced a four-month freeze (until June 30) on petrol and electricity prices on February 28 as part of a series of measures to bring relief to the public.
The PML-N had severely criticised former prime minister Imran Khan’s government for “derailing” the IMF programme through these subsidies but despite being at the helm for over a month, it has not reversed them. The finance minister has repeatedly said these subsidies are not feasible and are costing the government billions.
The IMF has made the resumption of its programme with Pakistan, along with a $2bn expansion, conditional on the reversal of these subsidies.
When the latest round of negotiations had begun with the IMF, Ismail had conveyed to the Fund that the government understood the current economic crisis and agreed that it would have to take “tough decisions” while mitigating the effects of inflation on middle to low-income groups.
However, before leaving for Doha on Monday to join the talks in-persons, he ruled out the reversal of the subsidies, saying that the “nation cannot endure it”.
