Pakistan Cannot Escape Rules of Economics


On Thursday May 26, the coalition government led by Prime Minister Shahbaz Sharif announced an increase in prices of petroleum products. Finance Minister, Miftah Ismail, made the announcement at a press conference in Islamabad explaining that the decision had to taken to ensure the revival of the International Monetary Fund (IMF) program.

This decision had a positive impact on the market with the rupee and stock market stabilizing. The policy decision will also remove a major hitch in the way of concluding a staff-level agreement with the IMF.

At the recent Doha talks the IMF had refused to revive the $6bn program “without the removal of the fiscally unsustainable fuel and electricity subsidies and had given Islamabad two days to lift the cap for the continuation of talks.”

As an editorial in Dawn noted, “That the Shehbaz Sharif government, which had been reluctant to enhance fuel prices despite the consistent rise in global oil markets out of fear of a political backlash, has finally decided to lift the price cap shows that it feels politically more confident to take tough and unpopular decisions to tackle the economic crisis.”

However, the increase in fuel prices “is only the first step towards saving the economy as both the IMF and State Bank want the government to not only transfer the entire burden of global energy prices to the consumers but also recover the full amount of GST and petroleum levy in the next fiscal year. Once that condition is fully met, chances are that the IMF will enhance funding under the program and extend the arrangement through June 2023 for fiscal consolidation in the country.”

Hopefully, Shahbaz Sharif will continue to govern based on this recent statement “we cannot let the state sink for the sake of politics.”


Author: Nadia Khalid