IMF praises oil crisis handling, urges gas sector reforms

Islamabad: The International Monetary Fund (IMF) has commended Pakistan's management of the oil crisis, praising the country's ability to keep the supply stable and avoid additional budgetary burdens during the six months of the US-Iran conflict. However, the IMF has urged the authorities to expedite the groundwork for addressing the growing gas sector circular debt and providing targeted subsidies to low-income consumers.

Initial discussions on shifting gas-sector subsidies from consumer tariffs to the BISP-based direct transfers have revealed significant challenges related to data and ownership. As a result, the IMF is skeptical about the readiness of the gas sector to implement uniform tariffs linked to the average gas price of around Rs1,700 per million British thermal units (mmBtu).

The Petroleum Division, led by Minister Ali Pervaiz Malik, has been advocating for uniform gas rates to cover the actual supply cost, reduce cross-subsidies, and decrease the gas-sector debt, which has now reached approximately Rs3.6 trillion. The proposal to increase the petroleum levy by a few rupees to finance part of the debt has not gained traction at government forums.

The IMF is still uncertain about the feasibility of the current groundwork, emphasizing the need for further deliberations with consultants to develop a more workable mechanism in the long run. The IMF has also acknowledged Pakistan's efficient management of the power sector, which has outperformed expectations in terms of bill recoveries and loss reduction.

Despite the power sector's successful performance, the circular debt could have been reduced further if K-Electric had paid around Rs200bn on time, instead of holding it through litigation. Discussions for finalizing a plan to provide direct cash subsidies to poor power consumers through the Benazir Income Support Programme are expected to take place during policy-level discussions next week.