New Delhi, April 9: The International Monetary Fund (IMF) has urged Pakistan to remove subsidies on diesel, as providing fuel below market prices contradicts the terms of their loan agreement. However, Islamabad has openly disregarded these regulations by reducing the petrol subsidy.
According to an article in Karachi’s Dawn newspaper, “The Prime Minister’s decision on Friday night to lower the petrol levy indicates that the government has reverted to its old economic practices.”
This move is not expected to immediately impact the latest staff-level agreement with the IMF. However, the lender is concerned about the existing imbalance in diesel prices. This imbalance emerged after recent events between the US, Israel, and Iran on March 7, and the IMF wants it addressed promptly.
Initially, the government planned to compensate for the revenue loss from the diesel petroleum levy by increasing the levy on petrol. Currently, the diesel levy stands at zero, compared to the budgeted 80 rupees per liter. Nevertheless, the Prime Minister has reduced the petrol levy by 80 rupees per liter to provide relief to everyone, rather than just a select few.
The IMF had quietly tolerated the government’s announced targeted subsidies, likely because they did not harm the revenue targets from the levies. However, last week’s announcement has significantly altered that situation.
This means the government is finding it increasingly challenging to balance public relief with maintaining fiscal discipline. This popular decision will weaken a major revenue source, while tax collection still falls short of targets.
Consequently, achieving critical objectives of the IMF program, such as a primary surplus, becomes more challenging. Thus, the lender’s emphasis on addressing these shortcomings is economically justified. Islamabad’s difficulties are largely self-inflicted.
Years of delays in tax reforms and hesitance to cut unnecessary expenditures have left the government with limited resources to withstand external shocks. The current rise in oil prices and disruptions in global supply routes have further exposed these vulnerabilities.
My name is Ganpat Singh Choughan. I am an experienced content writer with 7 years of expertise in the field. Currently, I contribute to Daily Kiran, creating engaging and informative content across a variety of categories including technology, health, travel, education, and automobiles. My goal is to deliver accurate, insightful, and captivating information through my words to help readers stay informed and empowered.
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