The government has recognized 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 increase fuel prices if no additional savings can be identified to maintain current levels, as inflation hit a near one-and-a-half year high of 7.3% last month, driven by rising fuel, electricity and gas prices.
Sources told The Express PK Press Club that the IMF has also imposed a new condition of increasing the quarterly allocation under the Benazir Income Support Scheme by 35 per cent to Rs 19,500 from January next year to offset the impact of increase in energy prices. But the quarterly increase of Rs 5,000 in BISP cannot offset the impact on other income groups, especially the lower and upper middle income groups.
Government sources told The Express PK Press Club that assurance was given to the IMF before reaching a conditional staff-level agreement for the disbursement of loan tranches of $1.2 billion. The board meeting is linked to the Federal Board of Revenue’s ability to generate Rs322 billion from court cases.
The sources said the government informed the IMF that the subsidy on petrol and diesel was “temporary” and would only continue until savings were identified in the budget.
Prime Minister Shehbaz Sharif maintained fuel prices after raising them by 20% shortly after the start of the Middle East conflict. However, the government continues to impose unreasonably high taxes on gasoline, which far exceed the subsidies provided by the government on this product.
In the case of high-speed diesel, the government was providing subsidies and discussing the possibility of reducing taxes to maintain prices, the sources added.
The sources said the federal government has informed the IMF that it is in discussions with the provinces to find more fiscal space to maintain fuel prices.
The Finance Ministry 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, consumption did not decrease last month because neither the population nor the government showed self-discipline.
But Pakistani authorities told the IMF that to avoid very costly fiscal subsidies, they remained committed to allowing regular reviews of fuel prices unless additional savings were identified and achieved.
The lender was informed that the government saved Rs27 billion through a reduction in fuel allocations for official vehicles and a 20% reduction in non-salary expenditure in the last quarter. Another Rs 100 billion was diverted from the federal development budget.
The government is in talks with provinces to secure additional fiscal space worth Rs200 billion to maintain current prices. However, there is also a view within the government that some price increase should be passed on to consumers this Friday, in order to curb demand.
Thanks to better supply management by the Ministry of Oil, there is no shortage of fuel, but the Ministry of Finance is struggling to secure fiscal space as well as dollar supply.
Prices reach 17-month high
Pakistan made the commitment days before the new inflation figure was released by the national data collection agency.
The Pakistan Bureau of Statistics reported on Wednesday that inflation reached 7.3% in March, the highest level in 17 months. However, it remains below government expectations and also remains within the annual target range.
The pace of food inflation slowed further last month, but prices of non-food items rose in both urban and rural areas. PBS reported that gas prices increased by 23%, followed by an 18% increase for gasoline and a 14% increase for electricity last month compared to the same period last year.
The inflation indicator for non-food and non-energy products also increased last month to 7.4% in urban areas and 8.4% in rural areas, according to the PBS.
Pakistan has assured the IMF that it is ready to increase interest rates provided the annual inflation rate exceeds the target range of 7.5%.
However, any temporary slippage should not serve as the basis for an interest rate increase that could further slow the economy.
BISP beneficiaries
The sources said that to offset the impact of future price increases on the poor segments, the IMF has asked the government to increase cash grants distributed to the 10 million BISP beneficiaries. They said the number of beneficiaries would also be increased by 200,000 by June this year, reaching 10.2 million.
The sources said an agreement had been reached between the federal government and the IMF to increase the amount of unconditional cash transfer from Rs 14,500 to Rs 19,500 from January 2027. They said the increase in the amount to Rs 19,500 was the new condition imposed by the IMF.
The increase would be enough to offset the inflationary impact and also reduce donations to almost 15% of the cost of basic foods consumed by the lowest income groups, the sources added.
The sources said that under the conditional transfers, around 700,000 more beneficiaries would be added to the pool of health and education programs and another 200,000 beneficiaries of nutrition programs managed through the BISP.
Prime Minister Shehbaz Sharif has already asked the BISP management to distribute money to beneficiaries through banking channels to avoid hassles.
