Pakistan has slashed fuel subsidies in two instalments to control the fiscal deficit. Its power and gas regulators have determined an increase of 45-50 percent in electricity and gas rates effective from July 1. The measures have already raised petroleum prices to the highest ever level besides hiking prices of consumer goods and fares. Despite the measures taken by the Finance Ministry, the IMF still appears to be dissatisfied. According to economists at Citigroup in Pakistan’s budget isn’t enough to unlock the IMF loan for a number of reasons that include the tax-to-GDP ratio which is budgeted to rise to 9.2 percent of GDP in the year starting July 1 from 8.6 percent. This is said to be low compared to Pakistan’s emerging market peers and its own history.
The rise in inflation has led PTI leaders to paint a doomsday scenario. Former PTI Federal Energy Minister Omar Ayub claims that when the power rate would touch Rs40 per unit, the people would stone leaders of the ruling alliance. According to Mr Ayub petrol prices would exceed Rs300 to Rs310 per litre in the coming months which would destroy agricultural and industrial sectors and the inflation would batter down the man in the street. PTI Finance Minister Shaukat Tarin maintains that the newly passed budget would trigger a storm of inflation and unemployment. PTI leader Asad Umer warns that Pakistan is only weeks away from becoming Sri Lanka.
A report in a national daily based on unquoted sources claims that the IMF officials acknowledge that some of these measures can hurt the poor and that they are ready to work with Pakistan to reduce the impact on essential commodities and the power sector to protect low-end consumers. On Wednesday the dollar breached the Rs 206 mark as the IMF loan facility remained stalled. There is need for the IMF to move apace. Unless it takes timely decisions, policy reforms could lead to unintended consequences that include social strife. This is the opposite of what the IMF is supposed to be working for.
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