The Government informs the IMF It’s Ending all Petrol and Electricity Subsidies

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GST Impacting Pakistan Export Competitiveness IMF
GST Impacting Pakistan Export Competitiveness IMF

Finance Minister Miftah Ismail on Friday agreed to The International Monetary Foundation’s (IMF) recommendation to cut the power and fuel subsidies as well as stop the amnesty tax for businesses scheme. The minister also said he would seek structural reforms to improve an economy struggling.

According to government officials the government has provided around the equivalent of Rs. 21 for every liter of gasoline or diesel. It also provides in the amount of Rs. 51.52 per liter for diesel and the sum of Rs. 5 per unit for electricity to support the relief package that was announced by the former prime minister Imran Khan on 28 Feb 2022. The entire package of subsidies is currently being funded through government reserves.

The government is likely to lose around Rs. 2.5 billion every day, and approximately Rs. 36 billion each fortnight, in the event that the subsidy for the energy sector is maintained.

“They’ve discussed the idea of removing the fuel subsidy. I’m with them,” Miftah said, speaking at the Atlantic Council.

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“We cannot afford to offer these types of subsidy. So, we’ll have to cut back on these,” he said. The amount of subsidies exceeds the cost for running the government. Yet, Miftah added that some specifically targeted subsidies should be provided to the poorest in Pakistan amid rising global prices.

Ismail declared that Pakistan as the world’s fifth-largest country, required to change its economic model that removes barriers and encouraging exports to the rest of the world.

“We are such an elite-benefiting country that nearly every subsidy you think of is actually going to the most wealthy individuals,” he said.

He added that the former prime minister Imran Khan, who was trying to avoid a re-election, set the stage for a “trap” that his successors would fall into by providing massive subsidies for electricity and fuel as well as the tax amnesty program that was designed for companies. He also said that the measures were designed to stop a payment from an IMF loan.

“He granted an amnesty for companies to set factories to ensure they don’t need to pay tax, and even dodged taxes, it’s fine,” Ismail told reporters at an event hosted by Pakistan’s Embassy.

Miftah declared that his first priority is to reduce inflation by double digits and this is that is complicated by the removal of subsidies for fuel – as well as accelerating the creation of jobs.
In the past week Miftah was critical of on the Pakistan Tehreek-e-Insaf (PTI) for sabotaging the IMF program as he reiterated the government’s determination to get the program back on track in order to bring back the economy that was devastated.

Minister said that the current government will do what is necessary to revive the program. The minister said that the government could cut expenditures for development in the public sector through other budgetary discipline measures.

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