Staff Reporter
ISLAMABAD: A default-threatened PML-N government took its most reluctant plunge and raised fuel prices to pave the way for an IMF bailout, ignoring the political cost of the move.
The news was broken by the Prime Minister Shehbaz Sharif’s finance lieutenant on Thursday night. The reversal of subsidies will be phased, the government said.
“The government has decided to increase the prices of petrol, high speed diesel, kerosene oil and light diesel oil by Rs30 per litre from Friday May 27, 2022. New prices will go into effect at midnight. The new price of petrol will be Rs179.86 and diesel will be Rs174.15 per litre,” Finance Minister Miftah Ismail said in a post on Twitter.
The surprise policy action came a day after the loan-revival talks between Pakistan and IMF ended on a disappointing note in Doha, Qatar. Rollback of fuel and power subsidies was the bone of contention between Pakistan and the IMF that was holding back the bailout the former direly needed to dodge a default.
Talking to a hurriedly-organised presser at Pakistan Information Department late on Thursday night, Ismail said the PTI government resorted to laying economic landmines for the future as soon as Imran Khan found out his days were numbered.
“We have taken a very tough decision by hiking petroleum prices by Rs30/litre with effect from tonight. We will be able to strike a staff level agreement with the IMF soon,” he said.
Pakistan and the IMF held talks in Doha after holding one- week negotiations but failed to strike a staff level agreement because the government was reluctant to withdraw unfunded fuel and energy subsidies.
The IMF has asked the government to move “urgently” and the first thing Ismail did after coming back from Doha was reverse the fuel subsidy partially after getting the premier’s approval.
The finance minister said the country was absolutely not in a position to afford massive losses and today PM Shehbaz Sharif took a very bold and tough decision to save the state and the economy.
“Being fully alive to the upshots of this step, we preferred the state over political gains,” he added.
The finance minister said there was no other option as no country could afford Rs83 per liter loss on diesel subsidy.
“There will be consequences for the PMLN-led coalition government, but the country comes first.”
The Finance Division in a notification issued on the same night said maintaining the existing petroleum products’ prices at the existing subsidised rates was constantly increasing the twin deficit for the government besides posing huge risks for the energy supply chain.
It said OMCs (Oil Marketing Companies) and refineries were facing difficulty getting confirmation from international banks for LCs (letters of credit)/ SBLCs (stand-by letters of credits).
“Owing the above, local banks are reluctant to open LCs, adding to importers’ hardships in obtaining insurance coverage for very high-priced cargoes,” it said.
The notification also said the government had decided to revise the existing petroleum products prices to rationalise them.
“To keep petroleum products affordable, prices are being increased partially,” the finance ministry added.
The country’s capital market that has mostly been erratic is trapped in a downward spiral, while the rupee lost 9 percent in April 2022.
The Extended Fund Facility (EFF) programme, launched in 2019, hit a suspension wall a few months back after popularity-challenged former prime minister Imran Khan capped the fuel prices for four months at a cost of $600 million a month. This subsidy is smothering the economy.
The new government mustered courage to call it off thrice but bottled out owing to political expediency. This dastardliness had started casting doubts on the PMLN-led government’s ability to take tough steps to win the IMF programme back.
The IMF, in its talks, stressed on the urgency of “concrete policy actions”.
Revival of the IMF programme unleashes the rest of $3 billion.
Copyright © 2021 Independent Pakistan | All rights reserved
