IMF allows Pak small policy space for fuel subsidies; economically unsustainable: Report

New Delhi, March 31 (IANS) The recent surge in global oil prices is testing Pakistan’s fragile macroeconomic stabilisation and the International Monetary Fund’s (IMF) tolerance of Islamabad’s decision to cushion domestic fuel prices signals a shift in approach, a new report has said.

The report from Dawn, however, cautioned that the government's decision to shield the population from rising fuel costs is politically understandable but economically unsustainable.

The West Asian conflict has injected a new variable -- uncertainty -- into the IMF's support for Pakistan, complicating fiscal planning.

Consequently, the "IMF programme is no longer merely a framework for stabilisation but has become a stress test of resilience," the report said.

The IMF’s apparent acceptance of Pakistan cushioning its domestic fuel prices signals pragmatic flexibility, but the international body still insists on fiscal discipline and primary surplus targets.

This forces Islamabad to balance emergency relief with medium‑term stability, the Pakistan-based media house said, adding that the crisis has already threatened to poke holes in recent advancements in inflation control, external account management and currency stability.

The Fund also cautioned that "energy sector distortions must be corrected and structural reforms accelerated."

"The emphasis on maintaining a primary surplus and avoiding untargeted subsidies underscores a fundamental tension," it added.

“The conflict in the Middle East, however, casts a cloud over the outlook as volatile energy prices and tighter global financial conditions risk putting upward pressure on inflation and weighing on growth and the current account,” the report cited IMF as saying.

The report highlighted that the latest staff-level agreement between the IMF and Pakistan could not have come at a more volatile moment when the disruption of energy flows through the Strait of Hormuz is putting pressure on the country's inflation.

“Any sustained disturbance inevitably transmits inflationary pressures across import-dependent economies, and few are as exposed as Pakistan,” the report noted.

The IMF's expectation from Islamabad to simultaneously absorb external shocks, protect its citizens and continue fiscal consolidation grows more precarious as the crisis in the Middle East deepens.

—IANS

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