Pakistan has announced a steep price hike for fuel and electricity by almost Rs 30/liter and Rs8/unit respectively as the government hopes for the bailout package from the International Monetary Fund (IMF). Last week, the IMF had reportedly refused any assistance unless Islamabad took some austerity measures to reduce the circular debt.

Finance Minister Miftah Ismail termed the move ‘inevitable’. He conceded that the hike would further increase inflation and burden the people but added that the country would have gone bankrupt otherwise.

Former prime minister Imran Khan, just weeks before his departure from power, had announced a heavy subsidy on fuel and electricity, which derailed the talks with the IMF. The decision was costing the government almost Rs 130 billion ( roughly $600 million) per month.

The country’s foreign exchange reserves are declining and just enough to cover imports for two months. Last week, authorities announced a ban on over two dozen luxury and other items to save foreign exchange reserves.

Some experts were already warning that any further delay in the revival of the IMF plan would push the country in the Sri Lanka way. However, the country’s governor of the central bank, Murtaza Syed, refuted these tall claims.

Conceding that the economy has been facing challenges, he argued, “Pakistan is not Sri Lanka. The country was badly hit by Covid as their income from tourism dried up. The tourism-based economy failed to fight off the challenges. For two years, they allowed the budget deficit to increase, which brought pressure on the current account.”

The $6 billion IMF bailout package was negotiated in 2019 but was stalled in 2020 as the previous government refused to implement the conditions and reforms they agreed upon earlier. The tax amnesty scheme announced during the tenure of the previous government had also impacted the government's revenue.

Finance Minister Miftah said that the government will not extend the tax amnesty scheme from July onwards.
(SAM)