PPP-PML-N cabinet deadlock persists

ISLAMABAD, April 15 (Agencies): Pakistan's new government is in internal discussions on whether to roll back fuel and power subsidies in the stuttering economy, officials said, as the industry regulator advised a huge hike to match global prices.
Former premier Imran Khan, who was ousted in a confidence vote earlier this week, announced a cut in petrol and electricity tariffs in February, despite soaring global prices, in a bid to win back popular support.
But that relief measure, estimated at 373 billion Pakistani rupees ($2.06 billion), has stretched government finances in a way that cannot be sustained, the finance ministry's top civil servant said. It has also endangered an ongoing International Monetary Fund rescue programme.
"The relief package will add to the fiscal deficit which we cannot afford at the moment," Finance Secretary Hamed Yaqoob Sheikh told Reuters.
"Either it has to be rolled back or compensating reductions in other expenditures would be required to ensure that the primary balance agreed with the IMF is achieved." The primary budget balance excludes debt repayment obligations.
The fiscal deficit could go as high as 10% of gross domestic product, according to new Prime Minister Shehbaz Sharif's top economic adviser Miftah Ismail, widely expected to be named finance minister.
Sharif met his economic team on Thursday to tackle the subsidies.
"We have been discussing this before (with the previous government) and are discussing it again with the new government as well," a finance ministry official told Reuters, speaking on the condition of anonymity.
The officials are proposing spreading the rollback of the subsidies over two to three months to soften its impact, he said, adding that the decision was now with the new political leadership.
Pakistan is in the midst of a $6 billion IMF bailout programme and has yet to clear its seventh review, which would release over $900 million and unlock other funding that depends on the fund's clearance.
The seventh review started in early March, but no agreement had been reached before the collapse of Khan's government.
A reversal of the fuel subsidies will be politically sensitive for a new government trying to shore up popular support at a time when inflation is running at 12.7%.
"Either the new government can raise prices, which will be politically costly, or they could cover the deficit by reducing other non-development expenditure, which will prove politically difficult," said Kaiser Bengali, a Pakistani economist who has previously held a number of government advisory roles.
The country's Oil and Gas Regulatory Authority (OGRA) advised the government to scrap the subsidies and raise prices effective Saturday, according to sources in the regulator. It gave two scenarios: one where the government continued to keep levies and tax at zero, and one where they would be reimposed to increase revenues.
Diesel fuel prices should be hiked by over 35% from 144 rupees ($0.8) to 195 rupees ($1.1) per litre, the sources said. This would increase to 264 rupees ($1.5) per litre if levies and tax were re-introduced - an 83.2% rise in price.
Petrol, currently at around 150 rupees ($0.83), should be raised by 14% to 171 rupees per litre. The price, if levies and tax are included, would shoot up 57% to 235 rupees ($1.3) per litre.
The government is not bound to implement this advice, and it was not immediately clear what decision the government would make.
Sharif is yet to announce his cabinet, but Ismail and the spokeswoman for Sharif's party, Marriyum Aurangzeb, did not immediately respond to Reuters' requests for comment.
Four days have passed since Shehbaz Sharif assumed the office of Prime Minister on Monday, and Shehbaz Sharif has not announced his Cabinet picks yet.
Despite multiple meetings between PPP and Pakistan Muslim League-Nawaz (PML-N), the new coalition set up has yet to reach understanding over the formation of federal cabinet.
Sources privy to the development told that PML-N and PPP held talks on late Wednesday over the formation of federal cabinet after ousting the PTI government.
PML-N delegation was represented by Ayaz Sadiq, Saad Rafique and Rana Sanaullah while from PPP Yousaf Raza Gillani, Sherry Rehman, Raja Pervaiz Ashraf and Naveed Qamar held talks with the largest party in the current coalition, they added.
Sources said that PML-N once again insisted PPP joining Prime Minister Shehbaz Sharif led federal cabinet. The PPP delegation suggested giving its ministries in a new coalition set up to other allies including MQM-P BNP and BAP.
It emerged earlier that the federal cabinet under consideration will likely to have 12 ministers from Pakistan Muslim League-Nawaz and seven ministers from Pakistan People's Party.
Moreover, JUI-F will likely to be given four ministries, MQM two ministries, while BNP-Mengal, ANP, Jamhoori Watan Party and Balochistan Awami Party will also be given cabinet portfolios.
Moreover, the name of PML-N Senator Azam Nazir Tarar has been under consideration for the Leader of the House in the Senate. INP.