IMF endorses diesel pricing formula

The International Monetary Fund (IMF) has endorsed a new diesel pricing formula in Pakistan, reducing costs for consumers by Rs100 per litre this week and addressing windfall gains for oil refineries resulting from the Middle East war.

Petroleum Minister Ali Pervaiz Malik announced the new rate on Friday, noting that the federal cabinet had approved the mechanism last week. The new formula utilizes the average of the previous week’s Dubai crude oil as the base price, incorporating Aramco’s crude oil premium for Arab Extra Light for Asia, which is $3 per barrel for April.

Under the new terms, the high-speed diesel crack has been capped at $41.89 per barrel with a floor of $11.33 per barrel, ensuring a historic weighted average crack of $6.16 per barrel.

IMF Negotiations and Windfall Gains

The IMF initially proposed a windfall tax to recover the difference between imported and locally refined diesel to fund subsidies. However, the government rejected the tax due to the lack of a foolproof mechanism to ensure the funds were used for their intended purposes.

Following a virtual meeting on Friday, the IMF agreed to the updated pricing formula after assurances that all shareholder stakes were protected. This shift follows an internal government review of pricing first raised by former finance minister Miftah Ismail.

Minister Malik stated that the prime minister monitored the situation daily to protect consumers. He emphasized that once the Middle East crisis concludes, the government intends to move toward full deregulation, upgrade refineries, and modernize the Oil and Gas Regulatory Authority (Ogra) using digital tools.

Fiscal Pressures and Tax Shortfalls

While diesel prices were lowered, the government increased the petroleum levy on petrol by Rs26.77 per litre on Friday. The total levy on petrol now stands at Rs107 per litre, exceeding the Rs80 per litre limit set by the IMF.

This increase is intended to offset a Rs610 billion shortfall in FBR tax revenues during the first nine months of the current fiscal year. This deficit has impacted the primary budget surplus target agreed upon with the IMF, which the government has been unable to renegotiate.

Strategic Reserves and Supply Chain

Government officials noted that Pakistan entered March 2026 with minimal strategic oil reserves, holding less than three months of import cover. Despite this, the country avoided supply disruptions through prompt decision-making and diplomatic support.

Minister Malik credited Deputy Prime Minister Ishaq Dar and Field Marshal Asim Munir for their support in arranging alternate supply routes via diplomatic channels to prevent shortages.