Petrol bomb

Petrol price hike may not be the last

The government did not take the expected fuel conservation measures, but did switch over to a weekly fixing of the petrol price, with an immediate increase on Friday, just six days after the fortnightly ‘fix’ om March 1. The increase was an across-the-board hike of Rs 55. The proposal to introduce online classes and work-from-home The petrol price has gone up from Rs 266.17 per litre to Rs 321.17, an increase of around 17 percent. Rs 20 have been averted by a cut of Rs 20 in the Petroleum Development Levy to Rs 105 per litre. This reflects the constant rise of oil on the global market after the virtual closure of the Straits of Hormuz. Because of the dependence on oil imports, Pakistan’s economy is about to tank.

There are two problems. First, this hike, while it has broken all previous records in rupee terms, is not the last. It has been estimated that Brent crude, which has reached $87 a barrel, will go up to Rs 100, which means the petrol price might go up to about Rs 370 per litre. Second, the petrol price hike will mean across-the-board inflation, which will start with the rise in transportation costs for people, and then for goods. Then there will be the steep rise in fuel adjustment charges in the power tariff, which will mean additional burdens on the consumer, both direct and because of increases in production costs. Already, industry, especially the crucial textile industry, has singled out power tariffs as one of the shackles it labours under. The government has tried a number of schemes to lower tariffs for industry, but it seems they are all going to come to naught. Next, interest rates are probably going to rise, and the SBP tries to keep a lid on inflation, which will in turn mean that debt servicing charges will increase.

That the IMF is engaged on a review, with the review team having gone to Istanbul because of the war, with the rest of its meetings being conducted by video conferencing. Pakistan is going to find it almost impossible to meet the target of a primary surplus if debt servicing goes through the roof, and the IMF is almost sure to veto reductions in the petroleum development levy, even though its abolition would take Rs 100 per litre off the pump price. The price hike has come with the sufficient supplies that exist. If there were shortages, the price would be uncontrollable.