Oil price hiked with heavy heart as govt desires minimum burden on poor: PM
Increasing energy prices, interest rates, tax collection remains IMF’s focus
ISLAMABAD– Citing the rising commodity price in the global market, Finance Minister Ishaq Dar on Tuesday announced a Rs19.95 per litre increase in the petrol rate – a move that will further trigger the inflation in the country at all levels.
In a message aired live by TV channels, Dar said the hike in high-speed diesel (HSD) would be Rs19.90 per litre, as he argued that the government was bound to follow the deal reached with the International Monetary Fund (IMF).
Any deviation would have negative consequences for the country and the outgoing government took the decision in Pakistan’s interest, he said, adding that Prime Minister Shehbaz Sharif had directed them to pass on minimum possible burden to the masses.
With the new prices coming into effect with an immediate effect, petrol and HSD will now be available for Rs272.95 and Rs273.40 per litre respectively – increasing the transportation cost both for individuals and goods to an unbearable level.
Under the stand-by agreement between Pakistan and the IMF, the government is not only bound to increase the Petroleum Development Levy (PDL) from the present level of Rs50 per litre to Rs60 but also do away with the subsidies to reduce fiscal deficit, leaving the people at the mercy of market.
Constitutionally speaking, it is the last fortnightly price review of the outgoing PML-N coalition government whose term is set to expire on 12th of this month. That’s why the government was hesitant to make the announcement supposed to made on Monday (July 31) before 12am – a politically devastating move given the general elections are to be held in October or November.
In this context, Dar said they tried to work out all the available means for providing relief to the masses while delaying the move but couldn’t find any room for that.
But the people don’t think in terms of deals, figures, international obligations and market forces as the latest hike petroleum products’ prices didn’t come in isolation.
In recent days, the government also jacked up the electricity base price as part of the energy sector reforms suggested by the IMF which envisage reducing circular debt and yet again minimising subsidies although the government says those consuming up to 200 units – stated to be over 65 per cent of total consumers – won’t be affected by the decision.
Meanwhile, the (Ogra) too raised the tariff for the Sui Northern Gas by 50 per cent and the Sui Southern Gas by 42pc on average – as the increasing the prices of utilities and fuel comes in a package.
It means a Sui Northern gas consumer is going to pay an additional amount of Rs415.55 per MMBtu (Metric Million British Thermal Unit) while the increase in the case of Sui Southern stands at Rs417 MMBtu
Prime Minister Shehbaz Sharif on Tuesday said that the surge in the international market compelled the government to raise petroleum prices with a heavy heart, though it always desired to put a minimum burden on the poor to ensure their economic survival.
The prime minister, in an interview with a private television channel (Aaj News), said that during the fortnight reviews across the last three months, the oil prices were reduced most of the time.
Substantiating his remarks, he said that with a view to protecting the poor from inflation, the government made no increase in electricity prices for the users consuming up to 200 units.
He said the government was bound to abide by the agreement with the International Monetary Fund, under which it was allowed to provide only targeted subsidies.
He said by breaching the IMF agreement, the previous government preferred its own interests putting the national interests at stake. He expressed the hope that with the signing of IMF agreement, the country’s economy was heading towards betterment.
International Monetary Fund (IMF) Managing Director Kristalina Georgieva stressed that Pakistan would have to accelerate structural reforms, as the world’s top financial institution’s executive board gave final approval to the $3 billion stand-by arrangement for the country.
According to Georgieva, these reforms are necessary for job creation and raising inclusive growth. The list includes building climate resilience, enhancing safety nets, strengthening governance – including of state-owned enterprises – and improving the business environment by creating a level-playing-field for investment and trade.
Talking about the challenges faced by the country, she said, “Pakistan’s economy was hit hard by significant shocks last year, notably the spill overs from the severe impacts of floods, the large volatility in commodity prices, and the tightening of external and domestic financing conditions.
“These factors together with uneven policy implementation under the EFF combined to halt the post-pandemic recovery, sharply increase inflation, and significantly depleted internal and external buffers,” the IMF said about the failure on the part of Pakistan to execute the previous programme which expired on June 30.
In a statement posted on the IMF website, Georgieva said the new stand-by arrangement, if implemented faithfully, offered Pakistan an opportunity to regain macroeconomic stability and address these imbalances through consistent policy implementation.
Praising the coalition government for the 2023-24 budget, she said it was a welcome step toward fiscal stabilization, while calling for enhancing tax collection, which, she said, was critical to strengthen public finances, and to eventually create the fiscal space needed to bolster social and development spending.
At the same time, she called for reducing state expenditure and bringing changes in the energy sector through steps like increase in tariff while modifying the subsidy structure.
“Maintaining discipline over non-critical primary expenditure will be essential to support budget execution within the envisaged envelope. In parallel, the authorities urgently need to strengthen energy sector viability by aligning tariffs with costs, reforming the sectors cost base, and better-targeting power subsidies.”
“Looking beyond this fiscal year, enhanced efforts to expand the tax base and improve public financial management, including in the delivery of quality infrastructure, are needed and increase progressivity and efficiency.”
The IMF managing director also touched the subject of monetary tightening by praising the State Bank of Pakistan (SBP) for interest rate hikes.
“The recent increase in the policy rate by the SBP is appropriate given the very high inflationary pressures, which disproportionately impact the most vulnerable. A continued tight, proactive, and data-driven monetary policy is warranted going forward.”
She also repeated the IMF stance that the government shouldn’t intervene to check the rupee value, saying. “A market-determined exchange rate is also critical to absorbing external shocks, reducing external imbalances, and restoring growth, competitiveness, and buffers. Close oversight of the banking system and decisive action to address undercapitalized financial institutions would support financial stability.”