Pakistan’s latest discussions with the International Monetary Fund (IMF) have exposed fresh disagreements over energy-sector reforms, fuel subsidies and the country’s growing gas-sector debt. While the government is trying to provide some relief to consumers facing high fuel prices, the IMF is pushing Islamabad toward tighter fiscal controls and more targeted support.
At the center of the disagreement is Pakistan’s three-month fuel compensation programmed for motorcyclists and owners of small cars. The government has estimated that the initiative will cost around Rs75 billion. IMF officials, however, are reportedly concerned that the actual expense could be considerably higher.
For Islamabad, ending the programmed before its scheduled completion could put additional pressure on consumers already dealing with expensive fuel. The government therefore appears reluctant to withdraw the relief early, although extending it beyond the original three-month period could become difficult.
The Bigger Problem: Gas-Sector Debt
Fuel subsidies are only one part of the disagreement. Pakistan is also trying to find a way to deal with approximately Rs3.6 trillion in gas-sector circular debt.
The government has proposed a complicated settlement involving tariff differential claims and payments among state-owned energy companies. The plan also involves dividends from companies such as OGDC, PPL and GHPL. Officials argue that the accumulated debt is partly the result of government policies and public-service obligations that prevented gas distribution companies from recovering their full costs.
The IMF, however, is questioning whether the proposed arrangement would actually improve Pakistan’s fiscal position. It has also raised concerns about the proposed treatment of gas-company receivables and delayed-payment charges, including amounts running into hundreds of billions of rupees.
Why Fuel Prices Are a Major Issue
The government has told the IMF that consumers are already paying a substantial amount for petrol. According to figures presented by the Petroleum Division, the imported cost of petrol before taxes and commercial margins was around Rs250 per liter, while the price paid by consumers was approximately Rs390.
A significant portion of the difference comes from taxes and margins. The Petroleum Division has therefore argued that high fuel prices are putting considerable pressure on households and that some form of relief is justified.
The IMF’s position is different. Rather than relying on broad-based or cross-subsidies, it wants Pakistan to use targeted assistance aimed specifically at people who need support. The lender has also reiterated its expectation that Pakistan avoid introducing new fuel subsidy mechanisms.
A Difficult Balancing Act
The disagreement highlights a broader challenge for Pakistan: how to protect consumers without worsening the government’s already difficult fiscal position.
On one side, high energy prices create pressure on households and businesses. On the other, subsidies and the accumulation of unpaid energy-sector liabilities can create additional financial problems for the government.
Pakistan is therefore attempting to restructure the energy sector while maintaining some immediate relief for consumers. The IMF, meanwhile, is seeking stronger controls over public finances and greater transparency in the way energy-sector liabilities are handled.
The two sides have already held several meetings on these issues, but important differences remain. The government has also formed a committee to pursue structural reforms in the petroleum sector.
The outcome of these negotiations will matter beyond the immediate fuel-compensation programmed. How Pakistan resolves its energy-sector debts and subsidy policies could have a lasting impact on public finances, energy companies and consumers alike.