Pakistan confident of defending $1.5 billion fuel subsidy at IMF review

PM Khan this week announced a cut in fuel and electricity prices despite a steep global rise in the cost of oil, pledging to freeze the new rates for 4 months

By Asif Shahzad and Syed Raza Hassan

ISLAMABAD (Reuters) - Pakistan is confident it will be able to defend a nearly $1.5 billion fuel and electricity subsidy package during a International Monetary Fund (IMF) programme review that started Friday, the finance ministry said.

Prime Minister Imran Khan this week announced a cut in fuel and electricity prices despite a steep global rise in the cost of oil, pledging to freeze the new rates for four months with the price differential being covered by the government.

"We are ready to address their (IMF) concerns, if any, about the merits of the relief package," the finance ministry spokesman Muzammil Aslam told Reuters, adding, "We have that fiscal space to fund this money."

The south Asian country had to undertake fiscal tightening measures to pass its last IMF review, which was delayed by months as the government struggled to complete prior actions required by the lender to release $1 billion in February.

The relief package, which surprised observers given global oil prices and Pakistan's economic conditions, was announced as opposition parties ready a no-confidence motion to push Khan out of office.

The subsidy over the next four months will need between 250 to 300 billion Pakistani rupees, Aslam said, adding that Pakistan had the fiscal space for it.

"We are already 285 billion rupees above our tax collection target," he said, adding, "If we have 1,400 billion rupees extra income than last year, and we have unused money, it gives us more flexibility and room to relocate the funds."

"The authorities and the IMF will discuss recent developments, the merits of the recently adopted relief package, and other measures to promote macroeconomic stability, during the upcoming mission," an IMF official told Reuters.

Khan's announcement came as the price of Brent crude oil shot past $100 a barrel in the global market in the aftermath of the Ukraine crisis.

The package has also raised concerns for oil companies operating in Pakistan which have warned of a "catastrophic disruption" in supplies as a result of the revised prices and the delayed release of government funds to bridge the gap between cost and retail prices.

Both the oil companies and the government told Reuters on Friday that they were in talks over a funding mechanism to ensure timely reimbursement of price differential claims for oil companies to avoid liquidity and working capital issues.

($1 = 177.4500 Pakistani rupees)

 

(Reporting by Asif Shahzad in Islamabad and Syed Raza Hassan in Karachi; Editing by Toby Chopra)