By Staff Reporter
KARACHI Pakistan’s fragile coalition government is all set to cut fuel prices, a move likely to ensure, for now, much needed political popularity at the cost of vital economic reforms.
The decision to reduce up to 8 percent in fuel prices for next two weeks is likely to disappoint the International Monetary Fund (IMF), which has said Pakistan must raise taxes and end subsidies if it wants to continue receiving an economic bailout package.
“I have ordered Ministries of Petroleum and Finance to pass on the reduction in the prices of POL (petroleum, oil and lubricant) products in the international market to people,“ Prime Minister Shehbaz Sharif said on his official Tweeter handle. “They have faced economic difficulties & the relief is their right.“
Reuters reported that global benchmark Brent crude tumbled $7 on Tuesday to settle below $100 a barrel for the first time in three months on a strengthening dollar, Covid-19 curbs in top crude importer China, and rising fears of a global economic slowdown.
The sharp drop followed a month of volatile trading in which investors have sold oil positions on worries that aggressive interest rate hikes to stem inflation will spur an economic downturn that will hit oil demand.
The move back in Pakistan, however, focuses to influence key provincial by polls in Punjab that would decide the fate of PM son’s ineffective government, analysts said.
The elections are due on July 17, 2022. The PM Sharif took the decision of a price cut at a meeting held in the provincial capital Lahore.
A government statement said the “prime minister has announced passing on the benefit of reduction of oil prices in the international market to the people”.
“The prime minister also directed the finance and petroleum ministries to send a summary suggesting reduction in prices of petroleum products to him.“
Implementing financial reforms, including levies on petroleum products, is a key condition by the IMF for the disbursement of two stalled tranches under a $6 billion bailout programme for Pakistan.
Analysts estimated the treasury would loose additional billions of rupees in coming weeks by agreeing to cut the fuel price.
Finance Minister Miftah Ismail told reporters a cut in prices would not derail ongoing IMF talks.
But analysts said the government will somehow have to convince the IMF that it is serious about the programme.
“The picture is not very clear as to what exactly the government’s plan is in terms of convincing the IMF but it will have to come up with a credible plan,” an analyst said.
The revised fuel price is not likely to have a significant impact on inflation, which rose more than 21 percent year-on-year in June.
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