·         Throwing austerity to the wind, PM yesterday announced a relief package aimed at alleviating inflationary pressures from the masses. Populous measures were taken in the wake of the raging commodity cycle, which has seen oil prices exceed US$100/bbl recently.

·         Relief measures entail a cut in administered fuel prices by PkR10/ltr (to PkR150/ltr) and adjustments in monthly fuel cost adjustments (FCA) on account of higher fuel prices, where the impact will be absorbed by GoP through subsidies. The total outlay is expected to be in the range of PkR250bn—PkR300bn (0.4% – 0.5% of GDP) which may slightly push the official fiscal deficit above 7.5% mark which we had estimated earlier.

·         As per country’s FM, IMF has given its blessings to the package and will likely be financed through cuts in PSDP, excess tax collection on the back of higher imports and unutilized COVID-19 funds carried forward from last year.

·         Another source that can potentially be utilized to fund this layout is dividends of state owned companies which include oil companies, however, at this stage we are still waiting for clarity on this mechanism. A plan to settle outstanding receivables of E&P companies has long been proposed which entails a hefty payout from the state owned E&Ps and may result in price discovery of these companies.

Courtesy – AKD Research