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Pakistan assures IMF to avoid new fuel subsidy in upcoming budget

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KARACHI – Pakistan is seeking fresh lending as International Monetary Fund (IMF) technical team arrived in Asian nation to discuss the next loan program.

Ahead of the formal talks, Sharif led PML-N government assured the IMF that it will not introduce new fuel subsidies or cross-subsidy schemes in FY24 and beyond, and will refrain from netting out cross-arrears without proper due diligence and independent auditing.

The circular debt stock stabilized in late 2023 and early 2024, supported by efforts to align energy tariffs with costs and ongoing anti-theft measures in the power sector.

Pakistan implemented a significant gas tariff increase on February 15 and is on track to meet its circular debt management plan target for FY24. However, restoring energy sector viability requires further cost-side reforms, such as improving transmission infrastructure, enhancing DISCO performance, and converting PHPL debt into public debt.

Meanwhile, the global lender emphasized need for regular energy tariff adjustments and broader reforms to restore energy sector viability. While Pakistan’s progressive tariff structure protects vulnerable consumers, the Fund suggests replacing it with cash transfers in the long term.

IMF also stressed importance of addressing cost-side and infrastructure issues to achieve a sustainable solution for the energy sector.

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