IMF urges Pakistan to implement gas tariff hike

WEB DESK: In a recent development, the International Monetary Fund (IMF) projected that the gas tariff raise on November 1, 2023, will contribute to headline inflation in the coming months.

The global financial institution has recommended a subsequent increase in gas tariffs, aligning with the Oil and Gas Regulatory Authority’s (OGRA) determination for December 2023 until February 15, 2024.

The IMF’s release on Saturday covered the First Review Under the Stand-by Arrangement, Requests for Waivers of Applicability of Performance Criteria, Modification of Performance Criteria, and Re-phasing of Access-Press Release; Staff Report; and Statement by the Executive Director for Pakistan.

Despite a general moderation in inflation since June, attributed to easing food and energy prices, the IMF projects the headline Consumer Price Index (CPI) to average 24 per cent in fiscal year 2024.

The gas tariff increase in November is expected to contribute to headline inflation, but gradual declines are anticipated due to lower core inflation and recent commodity price movements. The year-end inflation is revised to 18.5 and 9 per cent in fiscal year 24 and fiscal year 25, respectively.

The IMF emphasised the need for additional efforts in the gas sector, including the regular implementation of semi-annual gas tariff adjustments within the prescribed 40-day window.

The institution recommended the phasing out of captive power usage, establishing a level playing field among non-household consumers, and formalising a circular debt stock reduction plan.

Furthermore, the IMF urged the government to continue protecting vulnerable segments through secured gas tariff slabs until a targeted BISP scheme can effectively replace them.

The report highlighted the considerable increase in the gas sector’s circular debt, reaching an estimated Rs2084 billion (2.5 per cent of GDP) at the end of fiscal year 23.

The government, in response to the IMF’s concerns, initiated crucial reforms supported by the World Bank to generate more cash, reduce circular debt, and enable gas companies to invest in infrastructure while minimising unaccounted for gas (UFG) losses.

Notably, end-user gas prices were updated in February 2023, and a further adjustment took effect on November 1, 2023.

In commitment to OGRA’s scheduled semi-annual gas price adjustment anticipated for December 2023, the government pledged to implement the notification within the mandated 40-day window, ending on February 15, 2024.

Any price adjustments will maintain the current progressive slab structure for domestic consumers and protect vulnerable households, while also seeking to reduce cross-subsidies across industrial and commercial users.

The government is set to advise OGRA within 40 days to enable the automatic notification of semi-annual gas price determinations, aligning with the 2022 Amendment to the 2002 OGRA Ordinance.

This includes gradually moving towards cost-recovery prices for the fertiliser sector and equalising rates between export and non-export industries by March 2024.

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