IMF warns Pakistan against blanket fuel relief, seeks removal of pricing distortions

The International Monetary Fund (IMF) has asked Pakistan to remove distortions in petroleum pricing, raising concerns over the current structure even as the government continues to provide capped fuel subsidies, Dawn reported. 

The Fund remains opposed to across-the-board relief on petroleum products and has particularly highlighted imbalances in diesel pricing, where the petroleum development levy (PDL) stands at zero against a budgeted target of Rs80 per litre.

Officials said the government had initially tried to manage fiscal pressures by redistributing the PDL burden between petrol and diesel, but later moved towards targeted subsidies. These subsidies are now being financed partly through provincial budget adjustments.

The Rs152 billion petroleum subsidy introduced during the recent global price surge was implemented with the IMF’s prior knowledge, and the staff-level agreement reached on March 29 remains intact.

Finance Minister Muhammad Aurangzeb is expected to brief IMF and World Bank officials during the upcoming spring meetings on how provinces are contributing to the subsidy framework.

Revenue pressures have intensified after petrol prices were reduced by Rs80 per litre, narrowing the cushion created through higher PDL on petrol. Officials said the pricing structure will need reassessment in the coming days.

Petrol consumption currently averages around 660,000 tonnes per day, slightly higher than diesel consumption at about 600,000 tonnes. However, diesel demand is expected to increase during the harvest season, which could further affect revenue flows.

At the same time, petroleum differential claims of oil companies have exceeded Rs129 billion, although these have stabilised following recent price adjustments that passed on import costs. Payments are being released with a 10% retention pending audit verification.

Pakistan’s current fuel stocks stand at about 590,000 tonnes of petrol and 480,000 tonnes of diesel, covering approximately 26 days and 20 days of consumption, respectively. Additional cargoes — including 70,000 tonnes of petrol and 140,000 tonnes of diesel — are in transit.

Officials said discussions on resuming diesel imports from Kuwait have progressed but shipments have yet to begin, despite Iran allowing Pakistan-flagged vessels to pass through the Strait of Hormuz.