Pakistan’s Minister of State for Petroleum, Musadik Malik, has stated that the proposed petrol subsidy plan will not derail the loan deal with the International Monetary Fund (IMF).
The IMF has raised objections about the subsidy, stating that it was announced without consultation. The loan programme, worth $6.5 billion, has been stalled for months, and the delay in disbursement of the $1 billion tranche has caused significant harm to the economy.
Malik remains confident that the IMF can be convinced of the proposed scheme by using the differential gas pricing mechanism model. The government has already implemented differential gas pricing in the gas sector, charging higher rates for the rich and cheaper rates for the poor. The finance ministry has already answered two detailed questions regarding the petrol subsidy plan, in the hopes of satisfying the IMF’s concerns.
The government’s proposal would subsidize petrol for 800cc cars and motorbikes while making petrol prices more expensive for the rich. However, concerns have been raised that the pricing model used in the gas sector would be challenging to implement transparently for petrol prices. The IMF has also questioned the modalities of the subsidy plan, and the half-cooked cross-subsidy has caused delays in striking a staff-level agreement with the IMF. It remains to be seen how the IMF will respond to the proposal.
