Pakistan’s new government decides not to roll back fuel, power subsidies

Pakistan's new government on Friday decided not to roll back billions in fuel subsidies for the time being despite the strain on public funds, citing the possible backlash if it were to raise fuel prices just days after taking power.

Former premier Imran Khan, who was ousted in a confidence vote earlier this week, announced a cut in petrol and electricity tariffs in February, despite soaring global prices, in a bid to win back popular support.

That measure, estimated at 373 billion Pakistani rupees ($2.1 billion), has stretched government finances in a way that cannot be sustained, the finance ministry's top civil servant said. It has also endangered an ongoing International Monetary Fund rescue programme.

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"I have ... decided not to hike fuel prices in the public interest," Shehbaz Sharif, the new prime minister, said at a dinner in Islamabad on Friday night.

People would curse the new government just three days after it came to office if it took such a step, he said.

Former premier Imran Khan speaks during an event. File photo

Earlier, officials had warned of the fiscal fallout of continuing the subsidies.

"The relief package will add to the fiscal deficit which we cannot afford at the moment," Finance Secretary Hamed Yaqoob Sheikh told Reuters.

"Either it has to be rolled back or compensating reductions in other expenditures would be required to ensure that the primary balance agreed with the IMF is achieved."

The primary budget balance excludes debt repayment obligations.

The fiscal deficit could go as high as 10% of gross domestic product, according to new Prime Minister Shehbaz Sharif's top economic adviser Miftah Ismail, widely expected to be named finance minister.

"We have been discussing this before (with the previous government) and are discussing it again with the new government as well," a finance ministry official told Reuters, speaking on the condition of anonymity.

The officials are proposing spreading the rollback of the subsidies over two to three months to soften its impact, he said, adding that the decision was now with the new political leadership.