Pakistan nearly doubles gas prices to meet IMF bailout terms

Shehbaz Sharif, the younger brother of former Pakistan premier Nawaz Sharif, took over as the PM in April 2022 (Image: Reuters)

Cash-strapped Pakistan nearly doubled natural gas taxes Tuesday in an effort to comply with a long-stalled financial bailout, raising concerns that the hardship could pass to consumers in the impoverished south Asian country.

The government's bid to revive a $6 billion bailout from the International Monetary Fund hiked the price of natural gas for domestic and industrial consumers from 16% to 112%, shocking many Pakistanis who already are struggling. A similar increase in the prices of electricity is expected to be announced this week.

"The prices of cooking oil and all food items have doubled in the past less than one year, but there has not been any increase in our income," said Zameen Gul, 32, the father of three who works for a construction company in Peshawar. "I don't know how are we going to survive."

Pakistan is country strugglin with instability stemming from an economic crisis, last summer's devastating floods and a recent surge in violence. A critical $1.2 billion portion of the 2019 bailout has been stalled since December, with the IMF urging Pakistan to raise more cash.

The tax hike on natural gas Tuesday is likely to further increase the cost of production andan increase in already spiraling inflation, experts said.

"Pakistan's economy is currently like a rudderless ship, which is heading for a crash," said Ashfaq Ahmad, a Pakistani economist who has advised the government in the past.

Ahmad has been a critic of seeking bailouts from the IMF, but he said in these circumstances Pakistan had no other option.

"The government will have to impose new taxes and poor people will pay a heavy price for the bad policies of past governments which mostly relied on the IMF loans, " Ahmad told The Associated Press.

Miftah Ismail, a former Pakistani finance minister, said the next six-to-eight months will be difficult for Pakistan, but the country could, at some point, back away from the brink of default.

The latest development comes after Pakistani agreed to impose new taxes of 170 billion rupees for a bailout. Dar, the country's finance minister, this week told reporters that he expected the IMF to release the stalled $1.2 billion tranche from the 2019 deal.

Pakistan's foreign exchange reserves have fallen to below $3 billion, forcing Pakistan to further tighten controls on imports of raw materials for the industrial sector. The crisis has caused some factories to close in recent weeks and others to lay off employees.

Amjad Ali, a 45-year-old rickshaw driver in Lahore, said he was unhappy with the performance of former premier Imran Khan, because under his government, prices skyrocketed. But things have not gotten easier or more affordable, he said.

"The current government of Shahbaz Sharif is worse than Imran Khan's government," he said.

Khan was ousted through no-confidence in the parliament in April, and he has blamed a U.S. plot - which Washington denies. Khan has also warned that Pakistan is on the brink of default.

Sharif says the country's economy was badly hit by last summer's devastating floods that killed 1,739 people and caused billions of dollars in damage. Economists predict Pakistan's inflation rate of 26% could jump to 40% because of the new taxes. But they fear the inflation rate will jump to more than 60% if Pakistan fails to get the IMF loan.

Dar, the finance minister, hopes a revival of the IMF loan will spur friendly countries to open their wallets. He insisted that the government will impose new taxes in such a way that the poor are not affected, but economists say the poor will be the hardest-hit victims.

About 21% of Pakistan's population of 220 million is in poverty, according to the Asian Development Bank. The majority of the population are low and middle-income, and less than 10% are wealthy elites.