Pakistan hikes fuel prices under IMF pressure, more taxes on way

Pakistan’s economic meltdown, with foreign exchange touching $3.67 billion, is finally making its political class realise that imposing harsh taxes is the only way out to acquire an International Monetary Fund (IMF) loan.

On Sunday morning, Finance Minister Ishaq Dar in a televised appearance announced an increase of Rs 35 in the prices of petrol and diesel. Besides this, the government is planning two ordinances to levy additional taxes of Rs 200 billion in a bid to appease the IMF and seek emergency funding from the international lender.

The additional taxes being imposed will have a far flung fallout on Pakistan’s economy as well as cause unrest among its people. The proposed tax hikes are being considered amidst an ongoing rivalry between Finance Minister Dar and his predecessor Miftah Ismail who had been chucked out of his position in September 2022.

According to the Dawn, the taxes to be unleashed are discontinuing subsidies in the power sector, levying sales tax on raw materials for exports as well as additional hikes in electricity and gas.

These increases in the energy prices are being considered at a time when the LPG prices have touched a historic high of Rs 300 per kg. A domestic cylinder now costs Rs 3,550 while a commercial cylinder is being sold at Rs 13,620.

Also on the plans are regulatory duty on luxury items as well as devaluation of the rupee.

The proposal to levy and hike taxes comes on the heels of Pakistan’s stand last year not to accept IMF conditionalities for a loan that it desperates needed to ensure that it does not go down the Sri Lanka path – little forex for imports, high food inflation, shortage of fuel as well as massive social unrest.

Last year, the Islamic  nation had criticised the IMF for dictating terms.

However, what is clear is that the Pakistan government is at its wits end in managing the finances of the country. Earlier this week, Dar had said that the government is praying that Allah will bring prosperity back to Pakistan because Pakistan was conceived by Allah. Last year he had said that Pakistan does not need to agree to IMF’s conditionalities in running the country.

An IMF team is expected to visit Islamabad by the end of January after Prime Minister Shehbaz Sharif indicated that his government would accept the IMF conditions.