Fuel prices to go up Rs2.56/litre as ECC tightens auto import rules, PIA gets bailout
ISLAMABAD:
The government on Tuesday banned the import of used cars under the baggage scheme and tightened restrictions for the other two schemes, including a minimum three-year stay abroad, restricting competition for foreign firms in breach of commitments made to the International Monetary Fund (IMF). The Economic Coordination Committee (ECC) of the Cabinet, which tightened the conditions for car imports, also allowed the Power Division to add Rs522 billion to the flow of circular debt under the newly approved Circular Debt Management Plan 2025-26. The Rs522 billion addition in the flow will be offset using taxpayers’ money to keep the overall circular debt at last year’s level. Finance Minister Muhammad Aurangzeb chaired the ECC meeting.
According to another approval by the ECC, Rs2.5 billion of taxpayers’ money will be used to pay pensions and medical bills of Pakistan International Airlines (PIA) employees. The Rs2.5 billion is over and above the Rs31.7 billion that the government has already budgeted to pay interest on PIA’s legacy loans.
These decisions reflect that the country’s power sector and national airline continue to bleed despite repeated official claims of improvement.
Power
The ECC approved a new Circular Debt Management Plan for this fiscal year, which offsets the impact of an increase in the flow of circular debt through budgetary subsidies. The plan allows the addition of Rs522 billion in the flow, to be compensated through fiscal support.
“The base-case circular debt flow for FY2025-26 is expected to be Rs734 billion, which is planned to be mitigated to zero through timely tariff increases, improvement in losses and fiscal support,” according to the plan submitted to the ECC.
Even after increased power tariffs and some improvement in recoveries, Rs522 billion will still be added to the flow of circular debt. This amount will then be offset through budgetary injections. As a result, the net level of circular debt is projected to remain unchanged at Rs1.614 trillion.
The finance ministry said that the ECC directed the Power Division, in coordination with the Finance Division, to develop a medium-term plan for the gradual reduction of fiscal support. It also asked the Power Division to establish a follow-up mechanism with the distribution companies (DISCOs) to ensure delivery of targets. Under the plan, the Power Division has shown only Rs18 billion worth of improvement through a reduction in line losses of the power distribution companies. The positive impact of improved recoveries has been shown at Rs121 billion.
The Power Division claimed before the ECC that the new circular debt management plan is aimed at minimising the flow to manageable levels. It added that the gap between consumer reference rates and the cost of electricity would be bridged through timely tariff increases.
Cars
The ECC approved amendments to the vehicle import procedure, retaining only the Transfer of Residence and Gift Schemes, according to the Ministry of Finance. The government abolished the baggage scheme under which overseas Pakistanis were allowed to bring cars on their return to Pakistan.
Under the revised framework, commercial-import safety and environmental standards will apply to both schemes. The intervening import period has been extended from two to three years, and imported vehicles will remain non-transferable for one year.
The cumulative stay abroad required to benefit from the Gift and Transfer of Residence Schemes has been increased from 700 days to 850 days. Another condition requires that the vehicle must be from the same country of residence from where the sender gives the gift to a person in Pakistan.
The IMF had pushed Pakistan to liberalise the import of used cars, which the government had earlier restricted on the wishes of local assemblers. The tightening of restrictions may help limit imports but it will also restrict competition, which is necessary to compel local assemblers to offer better-quality vehicles at competitive prices.
Fuel margins
The ECC approved a proposal to revise the margins of oil marketing companies and petroleum dealers on petrol and high-speed diesel, the Ministry of Finance said. The ECC adjusted their profit margins in line with inflation, with increases capped between 5% and 10%.It was also decided that half of the increase in margins will be paid immediately, while the remaining half will be conditional on digitisation progress, with the Petroleum Division required to report back by June 1, 2026.As a result, the per-litre price of petrol and diesel will increase by Rs2.56. Oil marketing company profits have been increased by Rs1.22 per litre to Rs9.09. Dealers’ margins have been raised by Rs1.34 per litre to Rs9.98.
PIA bailout
The finance ministry said the ECC accorded in-principle approval for the release of budgetary allocations for PIA Holding Company Limited to meet pension and medical-related expenses of PIA employees.
Under the decision, Rs2.5 billion will be released to the PIA holding company for payment of pension bills and medical charges.
The ECC has thus approved the indirect injection of billions of rupees into PIA. Compared to last fiscal year’s Rs31.5 billion bailout, now routed through the PIA holding company, the government will inject Rs34.7 billion through this indirect mechanism during the current fiscal year.
The ECC approved the fresh Rs2.5 billion while another Rs31.7 billion is already part of the budget.
The ECC was warned by the Defence Division that there would be severe implications if the Rs34.7 billion funds were not disbursed in time, as the entity could default on its obligations. The Defence Division sought the ECC’s permission for the release of Rs30.4 billion for interest payments on Rs254 billion worth of domestic loans. It also sought Rs1.3 billion for interest payments on $54 million in foreign loans.
Other decisions
The ECC approved restrictions on chloroform imports due to its toxic and carcinogenic nature, deciding that Trichloromethane will only be imported by pharmaceutical companies and only with a no-objection certificate issued by the Drug Regulatory Authority of Pakistan.
The ECC approved a supplementary grant of Rs1.28 billion for the Pakistan Digital Authority. It also approved the allocation of Rs5 billion to the Housing and Works Division for the current fiscal year.
