KARACHI: Pakistan’s finance minister Miftah Ismail announced on Thursday the government had decided to increase fuel prices by Rs30 per liter after his negotiations with the International Monetary Fund (IMF) for the resumption of a $6 billion loan package remained inconclusive due to subsidies on petroleum products.
The subsidies were part of a relief package provided by former prime minister Imran Khan in February amid rising inflation which he said was going to cost over $2 billion between April and June 2022. The IMF had objected over his decision while refusing to release the next loan installment of about $1 billion.
Pakistan desperately needs external financing to boost its falling foreign exchange reserves which, at the current level of $10 billion, can barely cover two months of import payments. The new government has been seeking the IMF support since assuming the political power of the country, though it remained reluctant to meet the stringent terms and conditions of the international lending agency.
“The government has decided to protect the poor and its details will soon be announced by the prime minister himself in an address to the nation,” Ismail told a news conference in Islamabad. “I have only come here to tell you that the government has decided that from Friday, 27th of May, the prices of petrol, diesel, kerosene oil and light diesel oil will be increased by Rs30 per liter.”
He said that the new price of petrol and diesel would be Rs179.86 and Rs174.15 per liter, respectively.
Ismail hoped the government’s decision would help stabilize markets.
“It will also stabilize the rupee and improve the situation at the stock market,” he continued. “Most importantly, it will bring back some balance within the economy.”
The finance minister maintained it was a difficult decision since increased fuel prices would to negatively impact the government’s political capital.
However, he added it was the right move for the country since it was important for everyone to know that the new administration was truly determined to fix Pakistan’s economic woes.
Responding to a question, he said he was optimistic that Pakistan would soon reach a staff level agreement with the IMF.
The finance minister discussed the possibility of increasing the size of the loan by another $2 billion for an extended period of one year during his meetings with IMF officials in Washington in April.
He later told journalists in the US that the resumption of IMF loan program would also help unlock more funding from multilateral donors.
In the absence of a breakthrough in recent talks with the international lending agency in Doha, however, Pakistan’s national currency hit another all-time low of Rs202.01 against the greenback on Thursday due to increasing demand for the US dollar for import payments.
Pakistani economists criticized the government for not taking tough decisions earlier in the day, saying its indecisiveness was further aggravating the economic crisis.
“With reserves continuing to slide and no signal from the government that it is willing to take tough measures, Pakistan faces a situation where things can very quickly spiral out of control,” Uzair Younus, who works with Pakistan Initiative at Washington-based Atlantic Council, told Arab News. “Once herd mentality kicks in, it will be even more painful to stabilize the economy.”