IMF Talks | Editorial

There are reports that the government has decided to stay in power till its mandated term for a year and half, and take the ‘hard decisions’ going forward. However, while talks with the IMF are ongoing, Finance Minister Miftah Ismail has indicated the disastrous fuel subsidies instituted by the outgoing PTI government will not be rolled back. The government says that it will take the ‘hard decisions’, while obstinately refusing to take the most difficult and important one; this shows that political concerns are still being prioritised over crucial measures.

It is unclear whether the IMF will find the government’s decision acceptable. Negotiations for restarting the Fund’s bailout programme are underway in Doha, and the fuel subsidies were widely publicised as a key concern raised by the IMF, even during the previous government’s reign.

The fuel subsidies are costing the state as much as Rs40 billion a fortnight. The sheer cost alone should be enough to balk the Fund’s committee. There are precedents for fuel subsidies in other countries; Germany has provided tax cuts on petrol and other fuel products. But their subsidy programme is also geared towards other, non-vehicle owning segments of the population, through aggressive cost reductions in public transport costs (with a well-functioning public transport infrastructure, this provides crucial help to the public) and cash support programmes. As one of the wealthiest countries in the world, Germany can afford to do this without lasting damage to its economy. Our situation is very different.

The Finance Minister has himself spoken at length about the benefits a redirection of these funds could bring. A subsidy of the same value targeted directly towards the poor could help mitigate some of the worst effects of the consistently rising inflation numbers. Not just that, but while the government is burdening itself with this high cost, its inability to spend on public sector development and other key sectors means that the economy continues to stay in this flux and heads towards further stagflation.

Even if the IMF were to agree to this problematic subsidy, the government itself should reconsider. Fiscal responsibility entails that we do not sink precious funds from the national kitty in programmes that are a stop-gap measure, neither sustainable, nor too beneficial for the general population. The subsidy must be reversed.

Source: Published in The Nation​

May 24, 2022

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