Pakistan’s fuel price hike fuels high inflation
Pakistan's fuel price hike fuels high inflation
Pakistan Raises Petrol and Diesel Prices in IMF Deal, Inflation Continues to Soar
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ISLAMABAD, Aug 1 (ANBLE) – Pakistan announced an increase in petrol and diesel prices on Tuesday to meet fiscal objectives laid down in a deal with the International Monetary Fund (IMF), adding further fuel to its sky-high inflation.
In a move aimed at meeting fiscal targets set by the International Monetary Fund (IMF), Pakistan has raised the prices of petrol and diesel, exacerbating the already soaring inflation prevalent in the country. The Consumer Price Index in Pakistan rose to 28.3% in July on a year-on-year basis, with prices increasing by 3.5% in July compared to the previous month. This follows a decrease in the CPI rise from 29.4% in June, after reaching a record high of 38% in May.
The Precarious Balancing Act
Finance Minister Ishaq Dar addressed the nation in a recorded video statement, announcing that the prices of petrol and diesel would be increased by 19.95 Pakistani rupees and 19.90 rupees per litre, respectively. This represents an increase of 7.8% for both fuels. Dar highlighted that fuel prices have sharply risen in global markets over the past 15 days, with benchmark Brent crude oil prices climbing 16% during July.
Dar acknowledged the commitment made to the IMF regarding the petroleum levy, stating, “You all know the international commitments we have with the IMF regarding the petroleum levy.” He emphasized that the government had attempted to minimize the price hike, but due to the agreed commitments, a more modest increase was not possible. Pakistan has committed to a maximum petroleum levy of 50 rupees per litre, alongside other tough fiscal discipline measures, including raising additional revenues, increasing energy prices, and adopting a market-based exchange rate. These measures have contributed to the country’s current inflationary environment.
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While Dar did not disclose the specific petroleum levy in his statement, he previously stated that the government aimed to keep it at approximately 45 rupees per litre. The IMF has also called on Pakistan to maintain a tight monetary policy. Interestingly, the State Bank of Pakistan kept the policy rate steady at 22% on Monday, asserting that fulfilling the lender’s requirement for a tight policy does not necessarily mean raising the rate.
According to Capital Economics, a global analysis group, “We doubt this marks the end of the tightening cycle.” The statement continued, stating, “With inflation likely to remain above target for some considerable time and the upside risks to prices building, we expect further rate hikes later this year.”
Political Implications and General Elections
The recent increases in petrol and diesel prices, along with the rapidly rising inflation, have significant political implications for Finance Minister Ishaq Dar’s coalition government. The timing of these developments is particularly sensitive, as they occur just months before the general elections, where Imran Khan’s party is expected to be the main opponent.
The government’s decision to raise fuel prices and manage inflation in the context of an IMF deal inevitably has consequences that will shape the political landscape. As prices continue to surge and inflation remains a pressing concern, the challenge for Dar’s coalition government will be to convince the public of the necessity of these measures while also addressing the impact on their daily lives.
In conclusion, Pakistan’s decision to increase the prices of petrol and diesel is a result of their commitment to an agreement with the IMF. While this move aims to meet fiscal targets, it also exacerbates the already high inflation in the country. As political tensions rise ahead of the general elections, the government will be faced with the challenge of managing public sentiment amidst these economic challenges.
($1 = 286.7500 Pakistani rupees)
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