IMF asks Pakistan to remove fuel price distortions amid subsidy pressures

Sources said 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.

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.

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

The loss in PDL on diesel, currently zero compared to the Rs80 per litre envisaged in the budget, is being offset by higher rates on petrol. However, this cushion has diminished after the prime minister reduced petrol prices by Rs80 per litre on Friday, and the situation will need to be reassessed in the coming days.

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 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 Rs129bn 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 10pc retention, pending audit verification.

Pakistan currently holds about 590,000 tonnes of petrol and 480,000 tonnes of diesel in stock, equivalent to roughly 26 days of petrol coverage and 20 days of diesel. A petrol cargo of about 70,000 tonnes and two diesel cargoes totalling 140,000 tonnes are in transit, though the balance of payments remains a growing concern.

Officials also said discussions on reviving diesel imports from Kuwait progressed last week, but shipments have yet to begin despite Iran allowing 20 Pakistan-flagged vessels to pass through the Strait of Hormuz.

In response to another query, an official said Ogra has implemented a mechanism for settling Price Differential Claims. Under this system, 10pc of claims are retained until cross-verification with the Federal Board of Revenue and monthly third-party audits of stock positions conducted by PricewaterhouseCoopers.

Correction: An earlier version of this story stated that Pakistan’s petrol consumption currently averages around 660,000 tonnes per day. It averages around 660,000 tonnes per month. The error is regretted.