IMF pushes targeted subsidies
The mission chief of the International Monetary Fund (IMF), Iva Petrova, on Tuesday urged Pakistan to give only targeted subsidies through the national social safety net programme to deal with the aftermath of the Middle East conflict.
Petrova also pointed out the continuous missing of quarterly and annual targets of spending on education and health, which in the last fiscal year remained Rs370 billion below the target of nearly Rs3.5 trillion. She sought clarity on how the government plans to address the issue of statistical discrepancy of Rs853 billion in the books of federal and provincial governments.
The issues being raised during a kick-off meeting often become the basis for discussions for the staff-level agreement in addition to progress on performance criteria and structural benchmarks agreed between both sides.
The remarks about fuel subsidy were made during a symbolic kick-off meeting between Pakistan and the IMF, which was held this time on the seventh day of talks. Finance Minister Muhammad Aurangzeb, who has been abroad for many days, virtually attended the meeting.
The finance ministry did not release an official statement after the meeting, except for releasing a caption of pictures, stating that Muhammad Aurangzeb held a kick-off meeting with the IMF mission, led by Iva Petrova. It added that the IMF mission is in Islamabad for the fourth review of the Extended Fund Facility (EFF) and the third review of the Resilience and Sustainability Facility (RSF).
Government sources said the IMF mission took up the untargeted fuel compensation scheme, which the government has announced to partly offset the impact of unbearably high fuel prices, pushed up by both global prices and higher government taxes.
The government is currently charging a tax of Rs110 on per litre of petrol and Rs101 on diesel; therefore, there is no subsidy on any fuel.
A senior government official said the IMF did not oppose the scheme but said any such scheme should be implemented through an established mechanism, like the Benazir Income Support Programme (BISP).
Both the IMF country head and the finance ministry spokesman did not respond to requests for comments till the filing of the story.
Sources said the finance minister responded to the observations made by the IMF mission chief, but no further details were available.
During last week's meeting with IMF MD Kristalina Georgieva, on the sidelines of the UN General Assembly session, Prime Minister Shehbaz Sharif apprised her of the fuel compensation scheme.
After the meeting, the PM told The Express Tribune that he sensitised Georgieva to where the poor man would go due to high price pressure.
According to IT Minister Shaza Fatima Khawaja, till last Friday, around 6 million citizens had been registered under the scheme and over 6.2 million fuel relief tokens were generated, of which 4.8 million had been successfully redeemed.
The government has removed the five-litre limit for motorcycles, rickshaws and Qingqi following public feedback. Amid volatility in global oil markets resulting from tensions in the Middle East, the fuel relief scheme was aimed at providing direct and targeted relief to citizens most affected by rising fuel costs, according to the Pakistani authorities.
Sources said the IMF mission chief also raised the issue of slow progress on resolving the gas and power-sector circular debt problem.
Unlike the power sector where large subsidies are budgeted by the government to address tariff differential, the gas sector has inherently operated under a cross-subsidy mechanism to protect the vulnerable segment in the residential sector, which has led to inflated tariffs for other consumer categories in order to meet the revenue requirements of gas utilities.
The absence of budgeted subsidies has limited the ability of gas companies to lower tariffs for industry, commercial and residential consumers. The practice of revision of consumer gas prices in line with Ogra bi-annual determination of revenue requirements was consistent and strictly followed until financial year 2013; thereafter, this practice was neither followed nor was any provision of tariff differential subsidy against inadequate price revision ever made in the annual budget.
On a similar analogy, tariff differential in ring-fenced RLNG sale also arose starting FY 2018-19 when the government as a policy decided to divert RLNG to the residential sector for meeting winter gas demand without any firm mechanism for recovery of the cost of RLNG sold at indigenous gas tariff, an official of the Petroleum Division said.
As of March this year, the gas-sector circular debt had peaked at Rs3.6 trillion, including Rs1.8 trillion of principal outstanding amount. This principal amount was inclusive of Rs216 billion in tax refunds, which ideally should not be part of circular debt payments.
Sources said during the kick-off meeting, the IMF mission chief also raised concerns over slow progress on reforms in state-owned enterprises. She urged the government to fast-track these reforms, including amendments to the SOE laws.
The government's performance on structural reforms remains dismally slow and its focus has largely remained on delivering fiscal and monetary targets.
Planning Minister Ahsan Iqbal said last week that the IMF programme should be more than just fiscal numbers and it should focus on jobs and development.