The International Monetary Fund has asked Pakistan to remove distortions in petroleum pricing as soon as possible, even after tacitly accepting a Rs. 152 billion subsidy cap introduced by the government to shield consumers from a surge in global oil prices following the U.S.-Israel strikes on Iran and the closure of the Strait of Hormuz.
According to a report by Dawn, the staff-level agreement reached on March 29 remains intact and the subsidy was implemented with the Fund’s prior knowledge. However, the IMF continues to oppose broad-based subsidies on major petroleum products and is pressing Islamabad to shift fully toward targeted support.
Finance Minister Muhammad Aurangzeb is expected to brief IMF management on provincial contributions to the subsidy during next week’s spring meetings of the International Monetary Fund and the World Bank.
The report said the IMF remains particularly concerned about distortions in diesel pricing after Pakistan reduced the petroleum development levy (PDL) on diesel to zero, compared with Rs. 80 per litre envisaged in the federal budget. Higher levies on petrol have partly offset the shortfall, though that buffer narrowed after the government cut petrol prices by Rs. 80 per litre last week.
Petrol consumption currently averages about 660,000 tonnes per day, compared with roughly 600,000 tonnes for diesel, helping cushion revenue losses. Diesel demand is expected to increase during the harvest season, potentially widening fiscal pressures.
Authorities said the government initially attempted to manage fiscal space by adjusting the PDL between petrol and diesel before shifting toward targeted subsidies financed partly through provincial budget adjustments.
Officials added that macroeconomic indicators for the current fiscal year remain broadly aligned with IMF programme targets. However, significant adjustments will be required in the fiscal framework for 2026–27 ahead of budget negotiations with the Fund.
Petroleum differential claims by oil marketing companies and refineries have already exceeded Rs. 129 billion, but have now stabilized after recent price adjustments fully passed through import costs. Payments are currently being released with a 10% retention pending audit verification.
Officials said the balance-of-payments position remains under pressure despite adequate short-term fuel supplies.
Talks on resuming diesel imports from Kuwait advanced last week, though shipments have yet to begin even after Iran allowed 20 Pakistan-flagged vessels to transit the Strait of Hormuz.
Separately, the Oil and Gas Regulatory Authority has implemented a mechanism to settle price-differential claims, under which 10% of payments are withheld pending cross-verification with the Federal Board of Revenue and monthly third-party stock audits by PricewaterhouseCoopers.
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