Rs30/ltr: IMF deal closer as oil subsidy slashed further

By Staff Reporter

ISLAMABAD: Pakistan on Wednesday came closer to an IMF deal after it reversed the subsidy on petroleum products by another Rs30/litre for the second time in the last seven days, adding fuel to the inflationary fires.
Announcing the hike in the prices of fuels, Finance Minister Miftah Ismail justified the stringent measures as a deterrence against a looming default, being indispensable to plug the budgetary holes amid eroding foreign exchange reserves and mounting debt.
The new PMLN-led government took its time to make this move as it was loaded with political risks and analysts were saying this may put the party’s political future at stake.
However, the new setup had to go down that way as there was none other to patch the country’s public finances and essentially overcome a mutating economic crisis, but fuel price hikes will give the country’s runaway inflation a massive lift in the short run.
“It is true that the dearer the fuel, the higher the inflationary pressures, but the PTI government left us with no choice as it were they who laid this and other economic landmines for us before they were booted out of the office,” Miftah said talking to a press conference.
“I hope a staff-level IMF’s agreement will be struck within this month after the budget for fiscal year 2022-23.”
Independent economists are saying the government in Doha, Qatar, negotiated with the IMF half-heartedly as it didn’t fight Pakistan hard enough. The IMF teams, it must be said, beat them into agreeing to whatever they put on the table. The home-grown recovery strategies the Pakistani side flaunted so proudly were thrown out the window by the IMF toughies so the price shocks would continue haunting the inflation-stricken masses.
With a total so far increase of Rs60/litre, the prices in the domestic market crossed a ‘psychological barrier’ of Rs200/litre. Now petrol is selling at Rs209.86 and diesel Rs204.15/litre as the new prices took effect from midnight on June 3, 2022.
The price of Light Diesel Oil (LDO) was also increased by Rs30/litre to Rs178.31/litre. Only kerosene oil price was raised by Rs26.38/litre to Rs181.94/litre.
On inflows from friendly countries, Miftah said China had agreed to roll over $2.3 billion in commercial loans at a reduced markup rate of 1.5 percent against the earlier 2.5 percent.
He said the government would not yield under the IMF demands on hiking rates of Personal Income Tax (PIT) in the upcoming budget. “The tax amnesty scheme for the industrial sector will not be extended after July 2022.”
The minister hinted at no new taxes in June 2022 and as the agreements made so far with the IMF were fluid, which the government would try to change.
When asked about hiking the electricity tariff by Rs8/unit, Miftah said the summary was yet to reach his table and a decision in this regard would be taken next month.
“The government was still providing a subsidy of Rs8/litre on Light Diesel Oil, Rs9/litre on petrol, and Rs23/litre on diesel.
To another query about making efforts to get cheaper petroleum products from Russia, the minister said that former PTI government finance minister Hammad Azhar had written a letter to Russia on March 29, 2022, knowing very well it would be of no consequence and their time was up. “Russia never replied back”.
“We can consider getting cheaper oil from Russia provided we cannot not breach any economic sanctions,” he added.
He said the ECC recently, under his chairmanship, approved procurement of wheat from Russia through a government-to-government agreement.
“Pakistan can also explore the possibility to procure wheat from Ukraine if it’s available at lower rates.”
Miftah said that the government could save Rs4 billion by slashing down non salaried expenditures on a monthly basis but the fuel subsidy was consuming those Rs4 billion/day.
“The volume of fuel subsidies was so massive that there was no other solution but to kill them,” he added.
To a question about the possibility of withdrawing petrol subsidies to ministers, judges, and others, the finance minister said he was not getting any petrol from the government and about the petrol subsidies for judges, “you should ask them directly”.
He said that the government would provide gas and electricity to exporters and industrialists at competitive rates.
“The government is in the process of procuring RLNG at $30/mmBtu, which cannot be provided to anyone at rates as low as $6/mmBtu,” the finance minister added.
Following the second petroleum price blow, PTI Chairman Imran Khan in a post on his official Twitter handle said: “Imported govt has increased petroleum prices by 40 percent or Rs60/litre. This will increase burden on the public by Rs 900bn & price hike in basic necessities. Plus, the Rs 8 increase in electricity price will put the entire country into shock. Expect inflation by 30 percent highest in 75 yrs”.
The International Monetary Fund (IMF) in an earlier statement said: “Pakistan needs to take wide-ranging steps to repair macroeconomic stability”.
This clearly means that for winning the coveted IMF loan programme back the PMLN-led government will have to knock itself out and this fuel price hike was just the beginning of a long painful season of economic hardship for most of the nation.