IMF repeats call for Pakistan to phase out fuel subsidy

An International Monetary Fund spokesperson said on Saturday that Pakistan should gradually withdraw its fuel subsidy scheme, and that any future support if oil prices rise again must be limited, time-bound and confined to the budget.

The spokesperson told Arab News that, in the context of the current review set out in the 7 October staff-level agreement, the scheme's broad scope meant it should be phased out. Any future fuel relief should reach only deserving households through existing social protection programmes and stay within the FY27 budget, the spokesperson said.

Independent Urdu reported that the scheme, launched in September, gives motorcyclists and rickshaw drivers a weekly petrol token worth Rs 500. Owners of vehicles with engines up to 800cc get a Rs 100 per litre discount on up to 10 litres every 10 days.

The government introduced the scheme to shield low-income road users from petrol prices pushed up by the war between the United States and Iran. Petrol reached a record Rs 458.41 per litre on 3 April and has since eased to about Rs 330 per litre.

Pakistan is pursuing economic stabilisation under a $7 billion Extended Fund Facility. Last month the IMF called for the scheme's immediate withdrawal, citing its heavy cost and wide coverage.

Finance Minister Muhammad Aurangzeb, Minister of State for Finance Bilal Azhar Kayani and finance adviser Khurram Shahzad did not answer Arab News requests for comment on the spokesperson's remarks, Independent Urdu reported.

The spokesperson said the war in the Middle East is a significant obstacle for Pakistan because of its reliance on oil and gas imports from the Gulf, and that Tehran's blockade of the Strait of Hormuz has disrupted global shipping.

Consumer prices rose 9.6 per cent in October, down from 10.3 per cent a month earlier, according to the Pakistan Bureau of Statistics. The spokesperson said high oil prices had already increased domestic inflation and warned that persistent volatility could weigh on the economic outlook.

Under the EFF, Pakistan has committed to letting domestic fuel prices follow global rates while softening the effect on the most vulnerable, the spokesperson said. The fund also wants Islamabad to reform state-owned enterprises and improve public service delivery and energy sector sustainability.

Negotiations with IMF officials in Karachi and Islamabad produced the staff-level agreement last month. Board approval would release about $1 billion under the EFF and $210 million under the Resilience and Sustainability Facility, bringing total disbursements to roughly $5.7 billion. The board is expected to meet in December, subject to the programme conditions being met.