IMF tells Pakistan to remove subsidy on fuels

New Delhi, April 6 The International Monetary Fund (IMF) has asked Pakistan to eliminate, at the earliest, distortions in the pricing of petroleum products due to the subsidy extended by the federal government to consumers amid the surge in global prices triggered by the Iran war, local media reports said on Monday.

A senior government official has confirmed that the IMF remains concerned about existing distortions, particularly in diesel pricing, and is pushing for their early removal, the Dawn reported.

Initially, the government attempted to balance finances by adjusting the petroleum development levy (PDL) between petrol and diesel. It later moved toward targeted subsidies, now being financed by provinces through the rationalisation of their respective budgets.

The loss in PDL on diesel, currently zero compared to the Rs 80 per litre envisaged in the budget, is being offset by higher rates on petrol. However, this cushion has diminished after Prime Minister Shebaz Sharif reduced petrol prices by Rs 80 per litre on Friday, and the situation will need to be reassessed in the coming days, the report stated.

Higher petrol consumption has partially offset the erosion in diesel PDL. Petrol consumption currently averages around 660,000 tonnes per month, compared to about 600,000 tonnes for diesel. However, diesel demand is expected to rise during the ongoing harvest season.

Officials noted that economic indicators for the current fiscal year are broadly aligned with IMF programme targets. However, significant adjustments will be required in next year’s macroeconomic framework, to be finalised in consultation with the IMF ahead of the federal budget for 2026–27.

They added that petroleum differential claims of the oil industry had already exceeded Rs 129 bn but have now ceased following recent price increases that fully passed on import costs. Payments to oil companies and refineries are being made with a 10 pc retention, pending audit verification, the report states.

The Dawn cited senior officials as saying that the staff-level agreement announced by the IMF on March 29 remains intact, and that the Rs 152 billion federal petroleum subsidy had been introduced with the Fund’s prior knowledge.

Sources told the Dawn that Finance Minister Muhammad Aurangzeb and his team will update IMF management on provincial contributions to the petroleum subsidy during the upcoming spring meetings of the IMF and the World Bank next week. However, the IMF continues to oppose across-the-board subsidies on major petroleum products.

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