The government has accepted the need for a mini-budget if revenues fall short of expectations by the end of December 2025, according to the IMF. Photo: archive
ISLAMABAD:
Pakistan has committed to the International Monetary Fund to raise fuel prices if additional savings can not be identified to maintain current levels, as inflation rose last month to a nearly one-and-a-half year high of 7.3%, driven by increases in fuel, electricity and gas prices.
Sources told The Express PAkGazette that the IMF also imposed a new condition of increasing the quarterly stipend under the Benazir Income Support Program by 35% to Rs 19,500 from January next year to offset the impact of the rise in power prices. But the quarterly increase of Rs 5,000 in the BISP allocation cannot offset the impact on other income groups, particularly the low to upper middle income groups.
Government sources told The Express PAkGazette that the guarantee had been given to the IMF before reaching a conditional agreement at the staff level for the disbursement of loan tranches of $1.2 billion. The executive board meeting is related to the Federal Board of Revenue’s ability to generate Rs 322 billion from court cases.
Sources said the government informed the IMF that the subsidy on petrol and diesel was “temporary” and would continue only until savings were identified in the budget.
Prime Minister Shehbaz Sharif has maintained fuel prices after initially raising them by 20% shortly after the conflict in the Middle East began. However, the government continued to charge unreasonably high taxes on gasoline, which are much more than the government subsidy on the product.
In the case of high-speed diesel, the government was providing subsidies and was discussing the possibility of reducing taxes to maintain prices, the sources added.
Sources said the federal government informed the IMF that it was in talks with provinces to find more fiscal space to maintain fuel prices.
The Finance Ministry informed the global lender that it recognized that regular adjustment of fuel prices was important to contain demand. Despite a 20% increase in fuel prices, there was no reduction in consumption last month because neither the people nor the government showed self-discipline.
But Pakistani authorities told the IMF that to avoid very costly budget subsidies, they remained committed to allowing periodic reviews of fuel prices unless additional savings were identified and secured.
The lender was told that the government saved 27 billion rupees thanks to a reduction in fuel subsidies for official vehicles and a 20% cut in non-salary expenses last quarter. Another Rs 100 billion was diverted from the federal development budget.
The government is in talks with provinces to get another Rs 200 billion of fiscal space to continue with current prices. However, within the government there is also the opinion that some price increase should be passed on to consumers this Friday as a measure to curb demand.
Thanks to better supply management by the Oil Ministry, there is no fuel shortage, but the Finance Ministry is struggling to ensure fiscal space and dollar supply.
Prices hit 17-month high
Pakistan made the commitment days before the national data collection agency reported the new inflation reading.
The Pakistan Bureau of Statistics reported on Wednesday that inflation rose to 7.3% in March, the highest level in the last 17 months. However, it was still lower than the government’s expectations and also within the annual target range.
The pace of food inflation slowed further last month, but prices of non-food products rose in both urban and rural areas. PBS said gas prices rose 23%, followed by an 18% rise in gasoline and a 14% rise in electricity last month from the same period last year.
The non-food and non-energy inflation indicator also increased last month to 7.4% in urban areas and 8.4% in rural areas, according to the PBS.
Pakistan has assured the IMF that it is willing to raise interest rates whenever the annual inflation rate falls beyond the target range of 7.5%.
However, any temporary slippage should not become a basis for raising interest rates, which could further slow the economy.
BISP beneficiaries
Sources said that to offset the impact of future price increases on the poor segments, the IMF has asked the government to increase cash aid being distributed among the 10 million BISP beneficiaries. They said the number of beneficiaries will also increase by 200,000 until June this year, to 10.2 million.
Sources said an understanding has been reached between the federal government and the IMF to increase the unconditional cash transfer amount from Rs 14,500 to Rs 19,500 from January 2027. They said increasing the amount to Rs 19,500 was the new condition imposed by the IMF.
The increase would be enough to offset the inflationary impact and also absorb about 15% of the cost of basic foods consumed by lower-income groups, the sources added.
Sources said that as part of the conditional transfers, around 700,000 more beneficiaries would be added to the pool of health and education schemes and another 200,000 in nutrition programs run through the BISP.
Prime Minister Shehbaz Sharif has already asked the BISP leadership to distribute the money among the beneficiaries through banking channels aimed at avoiding problems.
