Gibran Naiyar Peshimam, Asif Shahzad

KARACHI (Reuters) – Pakistan announced Thursday that it would increase fuel prices in order to resume receiving assistance from a $6 billion agreement with the International Monetary Fund. The announcement was made by the country’s finance minister.

As the news spread, prices will increase by 20% beginning Friday. Long lines at fuel stations are expected as a result. Minister MiftahIsmail tweeted that the new petrol price will rise to 179.86 rupees per litre, and diesel would go up to 174.15 rupees.

Reuters had reported on Thursday, that Islamabad (the IMF) and Islamabad reached a settlement to release $900million in funds. The deal was made after Pakistan removed fuel subsidies, which subsequently increased prices.

“If we raise fuel prices the deal will be completed. After the Doha talks ended, a source stated that they had outlined the details of a deal.

As part of an agreement with the IMF to remove subsidies from oil and power sectors in order to decrease the fiscal deficit, the price rise has been the major issue between Pakistani and IMF.

The subsidy was given by Imran Khan, the ousted prime minister to calm public sentiments against double-digit inflation. This move, according to the IMF, violated the terms of the 2019 agreement.

The $900 million is not the only deal. If the IMF passes the seventh review, other financing options for South Asia’s cash-strapped nation will be available. These foreign funds cover no more than two months of imports.

The IMF has yet to release approximately half the $6 billion in funds, so it’s not known when they will review.

BACK ON TRACK

While the IMF stated that significant progress was made during the negotiations, they stressed the importance of Pakistan getting rid of fuel and energy subsidies in order to move forward.

A Reuters request for comment from the IMF representative to Pakistan was not promptly answered.

The new Pakistani government took over in April and has not been able to lift the fuel price caps.

A Reuters order reveals that the Pakistan government held a joint session with parliament to examine the economic situation in Pakistan on Thursday.

The Pakistani consumer price index rose by 13.4% to April, compared with a year ago.

With elections scheduled within sixteen months, the removal of fuel subsidy would have likely political consequences for this coalition government.