WASHINGTON: Pakistan's new finance minister Miftah Ismail on Friday agreed with recommendations of the International Monetary Fund (IMF) to reduce fuel subsidies, pledging to pursue structural reforms to boost a crisis-wracked economy.
The IMF in 2019 approved a $6-billion loan over three years for Pakistan but disbursement has been slowed down by concerns on the pace of reforms and the change in government. Pakistan is currently in talks for the seventh review of the Extended Fund Facility (EFF).
Ismail, who took office this month after Imran Khan lost a no-confidence vote, said he had "good discussions" with the IMF on a visit during the Washington-based lender's annual spring meetings.
We have such an elite-benefitting country that almost every subsidy that you can speak of actually goes to the richest people: Miftah Ismail
"They've talked about removing the subsidy on fuel. I agree with them," Ismail, himself a former IMF economist, said at the Atlantic Council.
Imran Khan announced freezing prices of petroleum products at the end of February, while also reducing power tariffs. Seen mostly as a populist measure, the new government also maintained oil prices in mid-April, but Ismail has said several times that the subsidy will be revisited.
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"We can't afford to do the subsidies that we're doing. So we're going to have to curtail this," he said.
He said that former prime minister Imran Khan set a "trap" for his successors through heavy subsidies on fuel.
Ismail, however, said that some targeted subsidies should remain for Pakistan's poorest amid sky-high global prices.
Pakistan's new Prime Minister Shehbaz Sharif has vowed to jumpstart a moribund economy, certain to be a major issue in elections due by late next year.
Pakistan has repeatedly sought international support and suffers from a chronically weak tax base. Its foreign exchange reserves have dropped to a critical level, and the country is now depending on rollover of loans to increase its import cover.
Ismail said Pakistan, the world's fifth most populous nation, needed to move to a new economic model by removing obstacles and promoting exports to the world.
"We have such an elite-benefitting country that almost every subsidy that you can speak of actually goes to the richest people," he said.
The finance minister is accompanied by SBP Governor Dr Reza Baqir along with other officials on his trip.
Before leaving for Washington, Ismail said that he was expecting to meet the IMF managing director, chief executive officer of the World Bank, executive directors of the G-7 nations, ministers of Turkey, Saudi Arabia and China and the IMF mission chief to Pakistan.
The IMF has set a series of prior conditions involving steep fiscal adjustment close to Rs1.3 trillion, increase in fuel prices to break-even and taxes restored, amnesty scheme discontinued for industries, circular debt reduced, power rates raised, and fiscal savings ensured in order to completely reverse the PTI government’s February 28 relief package.