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.

 

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