IMF resists Pakistan plea to ease oil levy as price pressure builds

Pakistan’s attempt to soften the impact of rising fuel costs has met resistance from the International Monetary Fund, creating a fresh policy dilemma for Islamabad at a moment of heightened economic stress. Officials say the government wants room to adjust petroleum levies so that consumers are not forced to absorb the full shock of soaring international oil prices, but the IMF has so far shown little appetite for relaxing the existing structure.

The issue surfaced after Prime Minister Shehbaz Sharif was briefed on the IMF’s initial position during discussions on how to respond to the latest spike in global crude prices. According to officials familiar with the matter, the response from the lender was not supportive of major changes to the levy framework. The prime minister then directed the finance ministry to resume engagement and seek fresh space for relief, arguing that an uncompromising pass-through to households would be too harsh in the present circumstances.

At the heart of the dispute is the petroleum levy, which the government sees as a possible cushion during an energy shock but the IMF views as a major source of revenue and a key part of Pakistan’s broader stabilisation commitments. Islamabad had hoped that a partial adjustment in these charges could help contain retail fuel prices. The Fund, however, remains cautious about any move that could weaken fiscal discipline or open a gap in revenue targets at a sensitive stage of Pakistan’s economic programme.

Government officials say the concern is not limited to motorists. Higher fuel prices would quickly spread through freight charges, food distribution, public transport and manufacturing costs, making inflation harder to control. That is why the prime minister has pushed economic managers to keep exploring options for relief. The message from the top, according to officials, is that a straight transfer of the entire global price shock to local consumers risks worsening the cost-of-living squeeze for millions of families.

Islamabad is also making the case that it has already spent heavily to shield the public from the first rounds of the crisis. Officials say roughly Rs129 billion has been used to keep prices from rising even faster, with the money arranged through cuts in development spending and savings elsewhere in the budget. That earlier protection bought time, but it also reduced the government’s own room to manoeuvre, making any IMF flexibility more important if the external shock persists.

The background to the confrontation is a wider regional energy crisis tied to the Iran war, which has unsettled supply routes and pushed up oil prices worldwide. Pakistan, as a net energy importer with limited fiscal space, is particularly exposed to such turbulence. The country has faced similar episodes before, but the current challenge is unfolding while the government is still trying to stabilise inflation, protect reserves and maintain confidence under an IMF-backed reform path.

The consequences of a prolonged standoff could be significant. If the levy structure remains unchanged, higher pump prices may become unavoidable, feeding into transport fares, retail prices and broader inflation expectations. Businesses reliant on diesel-powered logistics are especially vulnerable, and any sustained increase in costs could ripple through wholesale markets and household spending across the country. Politically, the issue is also sensitive because fuel prices are among the most visible measures of economic pain.

For now, Pakistan appears determined to keep negotiating rather than accept the first answer as final. The next phase will depend on whether renewed talks produce even limited flexibility or whether the government is forced to rely on targeted support instead of wider relief. Either way, the episode has highlighted the narrow path Islamabad must walk between satisfying programme conditions and preventing a new fuel shock from turning into a larger inflation and political crisis.