Islamabad, Pakistan — The Pakistani government on Friday will significantly raise consumer fuel prices, revive a $ 6 billion bailout package from the International Monetary Fund, and stabilize the country’s crater economy amid intensifying political turmoil. Paved the way.
The move to raise gasoline and diesel prices by about 20 percent (about 15 cents) has stopped concerns that Pakistan, which is already facing double-digit inflation, will join the global default wave as a pandemic, a financial shock from the war. I did. In Ukraine, rising interest rates are hitting many poor countries.
However, analysts said the decision sacrificed the popularity of the new coalition government, in addition to the political uncertainty that involved the country since Prime Minister Imran Khan was banished by a vote of no confidence in parliament earlier last month. Say it might be.
Uzile Yunus, Director of the Atlantic Council’s Pakistan Initiative, said: “Hiking will ease markets and reduce uncertainty. It will be important for governments to maintain momentum and continue to make decisions to move Pakistan out of the current crisis.”
Since his expulsion, Mr. Khan has held a series of political rallies, gathered large crowds, vehemently criticized the current coalition government and troops, and accused him of his dismissal. Some officials are now afraid that the government’s move to appease the IMF could give Mr Khan a wave of mass anger that can be manipulated on the streets.
Talks between the IMF and the new interim government, led by Shabaz Sharif, were announced in 2019 and were stalled for weeks over conditions for a resurgence of bailouts, which was suspended because the previous Pakistani government did not meet lending conditions such as energy cuts. Was there. Subsidy.
Pakistan wants to release a $ 6 billion IMF bailout package of about $ 900 million in its 7th tranche. Earlier this week, new negotiations between the IMF and the new Pakistani government in Doha, Qatar, appeared to have failed after fund authorities refused to accept Pakistan’s request to delay the end of government subsidies. ..
Sharif was reluctant to abolish the government’s energy subsidies and roll back unfunded subsidies to the IMF’s main demands for the oil and electricity sectors.
These elections are scheduled to take place next year, but the new administration is under public pressure from Khan’s supporters to hold the elections early.
On Thursday, Mr Khan announced the next election to the government and warned the government to dissolve the parliament within six days. The warning came shortly after he led thousands of supporters to the capital on Wednesday night. Angry supporters clashed with police in the capital and several other Pakistani cities. At least 1,700 protesters have been arrested by police in Punjab, the country’s most populous state.
According to analysts, this political pressure has made the new government hesitant to embark on meaningful economic reforms.
After flocking to gas stations in major cities late Thursday night and late at night, drivers were desperate to fill their tanks before price increases took place. Soaring inflation in recent years has already put pressure on the incomes of many drivers, pushing up the prices of basic goods.
“Income does not increase in proportion to rising prices for fuel and other necessities,” said Saleem Khan, 44, who was waiting to fill a motorcycle tank at a gas station in the port city of Karachi. rice field.
Kahn earns about 18,000 rupees a month, or about $ 90, at restaurants in the city. In the previous month, he was able to send about 10,000 rupees a month to relatives of Bajauer, a tribal district bordering Afghanistan.
“It looks like we can send just 7,000 rupees to our family this month,” he said.
Nearby, a garment factory worker, Rashid Ahmed, sat on his bike and was worried about basic payment methods such as food and rent as fuel prices rose.
“I thought the expulsion of Imran Khan would help the country lower fuel prices, but the current ruler is more cruel than the previous administration,” Ahmed, 34, said.
The new coalition government has been struggling to find its direction since taking office in early April and is in a particularly volatile position. There is no election mission, but it was elected by Congress to take over after Mr. Khan’s expulsion. And it’s a dilute coalition of political parties that previously clashed frequently and gathered only around the sole purpose of dismissing Mr. Khan. Mr Sharif’s party is also facing internal divisions over policy making.
Prior to his dismissal, Khan’s government also faced growing public dissatisfaction with rising inflation. Kahn claims that the economy is improving under the government, but has announced that it is lowering oil and energy prices to ease public rage.
Understanding Pakistan’s political and economic turmoil
Chaotic time. In recent weeks, Pakistan has faced a political crisis, with Imran Khan expelled from the prime minister and inflation soaring. Here’s what you need to know:
The move is now described by the new Finance Minister, Mifta Ismail, as “mine laying” and Pakistan will acquire the next tranche of the bailout package.
While announcing new fuel prices late Thursday night, Mr Ismail said the government was aware of the impact of painful economic measures, but hoped they would bring long-term benefits.
“It will also stabilize the rupee and improve stock market conditions,” Ismail said at a news conference. “The most important thing is to rebalance the economy.”
However, prices soared as new economic policies were delayed for several weeks. The Pakistan Rupee has fallen to historically low levels compared to the US dollar in recent weeks, the current account deficit has widened and foreign exchange reserves have fallen to $ 10 billion. It is barely enough to cover two months of national imports.
On Friday, the Pakistan Rupee showed some signs of recovery. But the government’s move to raise fuel prices on Friday was only the first step towards reviving the IMF’s bailout and restoring the country’s economic stability.
“Pakistan isn’t out of the woods yet. It takes at least $ 10 billion to stabilize reserves and currencies,” said Yousuf Nazar, a newspaper columnist and former head of Citigroup’s emerging market investment. Says. “Uncertainty continues until the entire bailout package is implemented, but it is exacerbated by political turmoil.”
Pakistan has participated in several IMF programs throughout its history, but successive leaders, including Mr. Khan and former Prime Minister Nawaz Sharif, have expressed dislike for foreign financial assistance. But the country’s declining economy and rising debt leave little choice but to accept bailouts from the government.
According to analysts, the main reason for Pakistan’s recurring balance of payments is the inability to expand exports, which have been largely stagnant for 10 years due to protectionist policies.
“Pakistan will need to change this in order to get out of this vicious circle,” Nazar said.
Salman Masoud Report from Islamabad, and Christina Gold Baum From Dubai, United Arab Emirates. Zia ur-Rehman Contributed to reports from Karachi, Pakistan.