KARACHI, Mar 24 (Reuters): Government is drafting a fuel pricing scheme aimed at helping the poor, the petroleum minister said, a programme that some economists fear could hinder a crucial International Monetary Fund pay out needed to prevent economic collapse.
Prime Minister Shehbaz Sharif first announced the government’s plans for fuel pricing last week.
Petroleum Minister Musadik Malik told Reuters his ministry had been given six weeks to draft the relief package, which envisages charging affluent consumers more for fuel, and using that money to reduce prices for the poor who have been hit hard by inflation, which in February was at its highest in 50 years.
“It is not a subsidy. It is a pricing scheme. It is a relief programme for the poor,” Malik said. A ministry spokesman said the price difference would be in the range of 100 Pakistani rupees (around 30 US cents) a litre for the rich and the poor.
With enough foreign reserves to only cover about four weeks of necessary imports, Pakistan is desperate for the IMF agreement to disperse a $1.1 billion tranche from a $6.5 billion bailout agreed in 2019.
The government has implemented several fiscal measures, including devaluing the rupee, lifting subsidies and raising energy prices as preconditions for the agreement, which the finance minister said this month was “very close”.
The resident IMF representative, Esther Perez Ruiz, said this week that the government did not consult the fund about the fuel pricing scheme.
She said the fund would ask the government for more details about the proposal, including how it will be implemented and what protection would be put in place to prevent abuse.
Asked about the IMF’s concerns, Malik said the scheme was not a subsidy. “We haven’t heard any concerns from the IMF,” he said. “It is same like we did in the gas sector, and that was okay with the IMF,” he added.
Earlier this year, the government implemented different prices for natural gas based on the amount of fuel consumed. Economists said the scheme could derail the progress Pakistan had made so far in negotiations with the IMF. “It seems this was not discussed with the IMF and, therefore, could delay the staff level agreement,” said former central bank deputy governor Murtaza Syed.
