Pakistan finance minister warns of default if fuel subsidies not abolished

A man waits inside a three-wheeler near a line to buy petrol from a fuel station, amid the country's economic crisis, in Colombo, Sri Lanka, May 23. (Image: Reuters)

Pakistan will default if the government does not abolish the subsidies on petroleum products, Finance Minister Miftah Ismail has said, warning that the cash-strapped country's economy could be in a similar position as that of Sri Lanka if tough decisions were not taken.

Ismail claimed that the government was still giving Rs 19 subsidy on petrol and Rs 53 subsidy on diesel, adding that Sri Lanka also gave subsidies to its public and it, eventually, defaulted. Speaking during Geo News' programme Capital Talk on Monday night, Finance Minister Ismail said the International Monetary Fund (IMF) has insisted on abolishing the subsidies on petroleum products.

The finance minister said if the price of petrol and electricity is not increased, then the country will default. I have told the prime minister that we have to take tough decisions. The prime minister is unhappy with increasing the prices of petroleum products…, Miftah lamented.

Today, Sri Lanka is purchasing expensive oil and they do not have funds to buy medicines for their people, the finance minister said as he warned of a similar situation in Pakistan. In a bid to bring economic stability and revive the stalled multi-billion-dollar IMF programme, the government had increased the price of petrol by a whopping Rs 60 per litre last month.

It was also expected that after the budget, some hurdles would be removed in the IMF programme's revival. But the finance minister last week said the IMF "was still unhappy with the government over the budget" mainly because it did not implement the Personal Income Tax (PIT) measures suggested by it. Last week, Miftah said that there was no financial emergency in Pakistan after the government took steps to rectify the ongoing economic turmoil and increased the price of petrol.

But in the latest interview, he said if the government does not increase the prices, the IMF will not strike a deal with Pakistan, and if this happens, then the country will be pushed toward "destruction." Miftah added that the previous Imran Khan's government did not make the decisions it agreed upon with the IMF. We are in talks with the IMF; the previous government did not strike a good deal with it.

He said that once the agreement with the IMF is reached and Chinese banks extend their loan facility to Pakistan, the market will regain confidence. He said that the government was trying hard to control inflation and it will be overcome in two to three months.

It was the responsibility of the government to put the country's economy on the right track, he was quoted as saying by the Geo News. Sri Lanka is currently facing its worst economic crisis since independence from Britain in 1948.

The economic crisis has prompted an acute shortage of essential items like food, medicine, cooking gas and other fuel, toilet paper, and even matches, with Sri Lankans being forced to wait in lines lasting hours outside stores to buy fuel and cooking gas.