ISLAMABAD: The International Monetary Fund (IMF) has called on Pakistan to swiftly eliminate distortions in petroleum pricing, despite acknowledging the government’s Rs152 billion subsidy cap introduced during a period of global oil market volatility.
According to senior officials, the staff-level agreement reached on March 29 remains intact, with the subsidy implemented in consultation with the Fund. However, the IMF has reiterated its opposition to blanket subsidies on major petroleum products, emphasizing the need for targeted and sustainable measures.
The government initially managed fiscal pressures by adjusting the Petroleum Development Levy (PDL) between petrol and diesel. More recently, it has shifted toward targeted subsidies, partly financed by provinces through budget rationalization. Nonetheless, the IMF has expressed concern over ongoing distortions, particularly the zero PDL on diesel compared to the budgeted Rs80 per litre, which has been offset by higher levies on petrol.
This balancing mechanism has weakened following the prime minister’s decision to reduce petrol prices by Rs80 per litre, prompting the need for further fiscal adjustments. While petrol consumption—currently averaging around 660,000 tonnes—has helped cushion revenue losses, diesel demand is expected to increase during the harvest season.
Officials noted that macroeconomic indicators remain broadly aligned with programme targets for the current fiscal year. However, significant recalibration will be required for the 2026–27 budget, to be finalized in coordination with the IMF during upcoming meetings with the World Bank.
Meanwhile, petroleum sector liabilities remain substantial, with price differential claims exceeding Rs129 billion before recent price adjustments fully passed on import costs. Payments to oil companies and refineries are being processed with a 10% retention, pending audit verification.
Pakistan’s current fuel reserves stand at approximately 590,000 tonnes of petrol and 480,000 tonnes of diesel—sufficient for 26 and 20 days of coverage, respectively. Additional shipments are underway, though concerns over the balance of payments persist.
Discussions on resuming diesel imports from Kuwait have progressed, but supplies have yet to commence, despite eased transit conditions through the Strait of Hormuz.
Story by Khaleeq Kiani
