Miftah delivers third fuel price shock in 20 days

Miftah delivers third fuel price shock in 20 days

The government raised fuel prices by up to 29 per cent on Wednesday, removing fuel subsidies in an attempt to trim the fiscal deficit and secure critical support from the International Monetary Fund (IMF).

This is the third cut in fuel subsidies in about 20 days. The prices of high-speed diesel (HSD), petrol, kerosene and light diesel oil (LDO) have gone up by a massive 83pc, 56pc, 73pc and 68.4pc, respectively, since May 26.

The ex-depot price of petrol now stands at Rs233.89 per litre, HSD Rs263.31, kerosene Rs211.43, and LDO Rs207.47.

Speaking at an unscheduled news conference with Minister of State for Petroleum Musadik Malik, Finance Minister Miftah Ismail said the price increase was inevitable “to save the country from the default”.

The decision was not an easy one, as this would increase inflation and consequently add to people’s miseries, Mr Ismail said but insisted that the previous government and challenging global market conditions had left no other option.

He said the prices of all products had now been brought to their purchase price and the element of subsidy or price differential claim had been eliminated. “There is no more government loss on the sale of petroleum products,” he said, hoping to conclude an agreement with the IMF for reviving loan support.

The IMF wants Pakistan to take strict measures to control its fiscal deficit in the face of a balance-of-payments crisis.

According to the finance minister’s announcement, the ex-depot price of HSD has been fixed at Rs263.31 per litre instead of Rs204.15, an increase of 29pc (or Rs59.16). The fuel’s price has jumped 83pc since May 26 from Rs144.15 per litre.

The price of petrol (motor spirit) has also been increased by 11.4pc or Rs24.03 per litre to Rs233.79 from Rs209.86. The price of petrol has increased by 56pc from Rs149.86 per litre before May 27.

Likewise, the price of kerosene has been increased by 16pc or Rs29.49 per litre and fixed at Rs211.43 per litre instead of the existing rate of Rs178.31. Its price has skyrocketed 73pc since May 26 when it stood at Rs118.31.

Also, the ex-depot price of light diesel oil (LDO) has been increased by 16.33pc or Rs29.16 per litre and set at Rs207.47 instead of Rs178.31. Its price has also increased by 68.5pc from Rs125.56 per litre in May.

Mr Ismail said the decision of such a price hike was not easy for any finance minister or prime minister but had become inevitable because of the “unreasonable decision” of the previous government to freeze prices for months.

He hoped that the exchange rate would now improve, markets would stabilise, the economy would balance out and the investor would take positively the government’s will to make difficult decisions.

He said global crude oil prices were hovering around $85-90 a barrel when the previous government decided to renege on a just-concluded agreement with the IMF by removing taxes and reducing prices. This was despite the fact that it had committed in writing to impose Rs30 per litre petroleum development levy and 17pc sales tax on the entire price, meaning taxes of about Rs64 per litre.

Now the international prices have gone beyond $120 a barrel and edible oil prices also jumped 300-400pc. He said petroleum differential losses were causing Rs120 billion monthly loss to the government compared to Rs42bn monthly expenditure of running the entire civil government. “I have not seen such a devastation in the economy over the past 30 years,” he said.

Mr Ismail said the government had tried to protect the poor by providing Rs2,000 to eight million households under the Benazir Income Support Programme in June and would increase this support to six million more families in the next fiscal year.

He said the previous government was so incompetent that during the Covid pandemic, when the entire world was witnessing minor inflation rates, Pakistan was among the top three most expensive countries.

The previous government neither signed contracts when oil and gas prices were at $6 nor created buffers for difficult times, he said.

The situation had now come to the point that the country was trying to avoid economic default, he said but hoped the tough times would pass after a few months.

He said the tough decisions were taken in the wake of rising petroleum product prices in the international market and the exchange rate variation because maintaining the fuel prices at subsidised rates was constantly increasing the fiscal deficit and current account gap besides putting pressure on the country’s foreign exchange reserves.

Speaking on the occasion, Musadik Malik said no price increase would have kept a monthly loss of Rs100bn that was almost equal to the country’s defence budget.

He said the previous government had left behind a circular debt of Rs1.4 trillion in the gas sector and Rs162bn in LNG diversion to the domestic sector. “We have taken responsibility to take corrective measures and we will not shy away but take responsibility,” he said.

“Global oil prices are out of our control but I promise the day international crude prices come down to $110 or 105, I will come back to you and announce a price cut,” Mr Malik said.

 

Will CPEC survive the IMF bailout?

Will CPEC survive the IMF bailout?

Will CPEC survive the IMF bailout?

If this is just a coincidence, it is intriguing. After a long lull, there is light blipping again on the CPEC drawing board. Last Friday, a 55-member Chinese delegation of business executives met Prime Minister Imran Khan and reportedly committed to ploughing $5 billion investment over the next five years. “Probably the interaction with the Chinese delegations was already planned, but the fact that it did materialise as soon as details of the IMF deal were made public kindled new hope for the future,” commented a top leader of the government’s economic team.

In its staff report following the approval of a three-year $6bn bailout programme, the IMF mentions the repayment of $14.68bn due for $21.8bn bilateral and commercial loans that Pakistan owes to China. This is almost 24pc of the country’s total $85.8bn external debt and liabilities. The document states that the Chinese commercial debt will be fully retired by the end of the programme in 2022 while the bilateral debt ($15.5bn) will be almost half of what the country owes at this point to $7.9bn.

Sometime back, the United States explicitly expressed its dismay over the possibility that Pakistan could use the Fund’s money to pay back Chinese loans. The US stance exasperated the anxieties surrounding the multibillion-dollar China’s investment plan. The CPEC did stimulate growth and motivated economic drivers by removing infrastructure bottlenecks before the start of the current tumultuous phase in May last year.

There is no formal word on the issue from China. The enthusiasm of the dependable friendly nation did somewhat wane for want of clarity on the post-election economic direction. There were concerns about the intent of the new set of rulers on the pledges by the PML-N government regarding CPEC-related projects. The initial statements by members of Prime Minister Khan’s economic dream team where they questioned the sealed deals must have added to the confusion. How far the visit helped to allay China’s reservations is anyone’s guess. But the optics are lacking if China is still as upbeat on the CPEC as before.

China prefers to speak with its silence most of the times. However, people in the know of things in Islamabad said that China did remind the current government, at some point, of the grave consequences of reneging on the earlier signed contractual obligations.

Approaching the relevant Chinese officers supervising the CPEC was a vain exercise as earlier efforts proved useless. It became apparent quickly that China feels neither keen nor obligated to share the details of its multiple deals. It sees no value in entertaining the prying journalists. Sometime back, a senior Chinese diplomat told this writer that whatever they wish to be known is put up on the CPEC website. He said their system does not allow free flow of information. “We need clearance from Beijing before sharing our opinion. It takes time and does not serve the calls of fast-paced media based in democratic traditions.”

The relevant people in the federal government dismissed the perception that the ruling party knocks the wind out of the CPEC sail as being a figment of someone’s imagination. All provinces, except Khyber Pakhtunkhwa, endorsed the counter-narrative — the movement on the CPEC agenda has indeed slowed down under the watch of the current government.

The focal person on the CPEC, Hasan Dawood Butt, sees the project progressing at the expected pace. He termed Pakistan “the buckle of the Chinese belt initiative”. “Prime Minister Khan is as much devoted and committed to the CPEC as anyone else. His successful meetings with the leadership in China hold testimony to his recognition of the project’s value to the country and its people. We are moving ahead in the next phase of economic cooperation that focuses on development of the social sector and economic cooperation,” he said over the phone from Islamabad.

“We host Chinese experts and business delegations every other day. Recently, a delegation of the petroleum sector was in Islamabad to explore the avenues of joint ventures in special industrial zones,” he said. There are nine sites identified across Pakistan for special zones.

Mr Butt attributed the relative lack of visibility of the Chinese in Pakistan to the completion of several early-harvest programmes in the first phase. “We are commencing the second phase of the CPEC where there are no big-ticket infrastructure projects that require Chinese technicians in big numbers. Instead, the focus now is on improving health, education and agriculture. There is discussion over agriculture co-branding etc. Once special zones become operational, perhaps the optics will improve,” he told Dawn.

The sense in the provincial capitals was different. Generally, officers were reluctant to come on record, but said that if the progress on the CPEC is not halted altogether, it is too slow to be seen as moving at all.

“Be it transport or industrial zones, I do not remember when it was last even mentioned in a high-level meeting. I don’t have a shred of doubt in my mind that the lack of interest right now is mutually shared between both partners. It could be the preoccupation of China with sour trade relations with the United States or the obsession of Prime Minister Khan’s team with the demands of the IMF. Whatever it is, it has pushed the CPEC down on the priority list on both sides,” a senior member of the hierarchy in Sindh said.

“At long last, the Punjab government has identified and started the process of acquiring land for the planned industrial zones. If all goes as planned, it will take another two years to fix the infrastructure and arrange for basic utilities before gates are opened to investors,” a senior officer from Punjab told Dawn.

Not everyone agrees. Dr Muhammad Amanullah, a senior officer from Punjab, defended the government. “In the second phase under the new government, the focus of the CPEC has moved towards industrial development, agriculture and socio-economic development. The perception of a slowdown, therefore, is wrong as currently provincial governments are working towards identifying and proposing projects for special economic zones. The exercise needs research and spadework with eyes on realising the full potential of this opportunity,” he said.

KP Planning and Development Secretary Atif Rehman sounded optimistic. He said the work is in progress on the Rashakai Economic Zone. He was happy with the pace of progress.

According to insiders, not all of the 22 projects in the first phase of the CPEC worth about $29bn have been completed yet. Some eight projects in the power sector that are completed are said to be in financial troubles for the non-payment of dues.