The Government of Pakistan has announced a dramatic rise in fuel prices that will take effect at midnight in a move that has caused shock around the country. The price of petrol has shot up to an unbelievable figure of Rs 458.41 per litre. High-speed diesel has jumped to Rs 520.35 per litre, an increase of Rs 184.49.
It is a fuel price increase that is perpetrated by the largest margin in Pakistan’s history.
How We Got Here?
Only 34 days ago, on February 28, the price of petrol was at 266.17 per litre. The price has been increasing by more than 72 times in two separate increases within less than a month.
The initial increase was made on March 6 when the government increased petrol and diesel by 55 per litre. The second and the more significant increase was made on April 2, and it led to an addition of another Rs 137 to the petrol and Rs 184 to the diesel.
The Crisis in the Middle East is put on the government.
After US-Israel attacks on Iran on February 28, Iran retaliated by virtually shutting down the Strait of Hormuz, a narrow channel where approximately 20 million barrels of oil pass every day. According to officials, global crude prices went out of control.
However, there is more to the tale. There is some independent analysis that underlying domestic fiscal pressures were equally important. Pakistan had already been subjected by the IMF to the compulsion of increasing fuel prices, and meeting a target of petroleum levy of Rs 1.468 trillion long before the Iran crisis struck.
A contingency reserve of 400 billion reserved by the government specifically on external shocks was also in place. It did not use it when the crisis in the Gulf struck. Rather, it was the consumers who were at the receiving end.
What Subsidies were announced?
To alleviate the pressure on the worst-hit sections of society, the government has assured relief for some groups.
- Motorcycle riders: 100 per litre subsidy on not more than 20 litres monthly.
- Intercity buses: subsidy of 100 per litre of diesel.
- Trucks and goods transport: Rs 70, 000 per month fuel subsidy.
But currently, these subsidies have yet to be put into practice on the ground. Customers are paying the entire price at petrol pumps in the country.
The Implication of this for ordinary people
This is not all about what you pay at the pump. The increasing fuel cost has an impact on the whole economy.
- Already, there is an increase in transport fares within the nation.
- Food prices for wheat, up 3 percent4, and meat, up 11 percent, will rise even higher.
- Electricity bills will come along, already increased 14% already.
- Inflation rose to 7.3% in March and could rise at a very high pace.
The move has been criticized by the Human Rights Council of Pakistan, which warns that the move will have a direct impact on the day-to-day lives of the common man and will bring about socio-economic instability.
To the millions of Pakistani people who take their motorcycles to work, deliver food, or get a daily wage, it is no longer about saving money. It is whether or not they have the money to run the engine at all.
Pakistan vs Neighbors- a sharp contrast
As the consumers in Pakistan are crushed, the other neighboring countries that have superior policy buffers have not felt the ripple.
- Pakistan: 72% growth since February 28
- Sri Lanka: 28-35% increase
- Afghanistan: 5% increase
- India: 3% increase
The diversified imports and strategic tax buffers of India continued to hold their growth to only 3%. Pakistan, however, had already increased the petroleum levy to Rs 82 per litre prior to the very onset of the war.
Conclusion
Fuel costs are currently at an all-time high in Pakistan. As the government cites war in the Middle East, the truth is that the domestic policy options, IMF commitments, undisturbed contingency reserves, and political calculations have left the Pakistani consumer with a disproportionate global burden.
So far, the only guarantee that people are left with is that life has become even more expensive. The cost of transport will be higher. Food will be expensive. Electricity will be more expensive. And to millions of everyday wage earners and small business owners, the question is, can they even afford to continue at all?
FAQs
The petrol cost on February 28 was 266.17/litre. This implies that in only 34 days, the total change in the prices has been an astronomical 72% rise in price. The same thing has happened with diesel.
Government leaders blame the Middle East crisis on the US-Israel targeting Iran. Iran sealed the Strait of Hormuz, which is causing an increase in petrol and diesel prices.
Not entirely. Although the war did indeed cause world prices to rocket, analysts believe domestic elements were also significant contributors. The IMF was already pressurizing Pakistan to increase its fuel prices and revenue requirements. The government also had a 400 billion emergency fund that it could use, but decided not to and left the entire cost to consumers.
