Pakistan Reader# 543, 30 January 2023
On 29 January, Finance Minister Ishaq Dar announced that the prices of petrol and high speed diesel (HSD) by PKR 35 per litre, two days before the scheduled announcement of the fuel prices in the country. Dar said that the price hikes are a part of the “big decisions” that have to be taken to “get the country out of economic crisis,” and reiterated that Pakistan needs to “get rid” of dependency on foreign aid. This comes as the IMF review mission is scheduled from 31 January, with the price hike helping Pakistan to solve the stalemate and pave a way for the potential revival of its programme with the IMF.
Dar, in a televised address, remarked that the hike in the petroleum products prices in the range of nearly PKR 47 to PKR 85 per litre lead to an artificial shortage of the products because of the non-selling and hoarding of the products. He said that despite the recent devaluation of the rupee against the dollar and an increase of 11 per cent in the prices in the global market, the government had decided to pass a “minimum price increase” would come to being from 29 January. He said that the petroleum products prices had not increased in the last four months and that the government is “optimistic” of the urgency of the action taken to solve the artificial shortages and hoardings in Pakistan.
What does the petrol hike entail?
Preceding the IMF’s visit and the precedented announcement of a price revision in petroleum products, the government announced a PKR 35 per litre increase in the price of petrol, high-speed diesel (HSD), a PKR 18 rise in light diesel oil (LDO) and kerosene rates. The revision would bring the petrol price to PKR 249.80 per litre, HSD at PKR 262.8, kerosene at PKR 189.83 and LDO at about PKR 187. The hike also entails a record high price against the previous peak of PKR 248.74 per litre in July 2022, registering the petrol price at the highest single-biggest jump in Pakistan’s history.
According to officials accruing to stabilise the price of petrol said that the ex-refinery price increased from PKR157.88 per litre to PKR177.47 per litre with the Inland Freight Equalisation Margin (IFEM) on petrol decreasing from PKR6.08 per litre to PKR 9.33 per litre. They said that the distribution margin and the dealer were kept unchanged at PKR 6 and 7 per litre, keeping the ex-depot price of petrol fixed at PKR 249.80 per litre with effect on 29 January. With diesel, the ex-refinery price increased from PKR 184.01 to 221.50 per litre, with the IFEM ramping up from PKR 3.21 to 10.70 per litre. The diesel price is fixed at PKR 262.80 per litre.
The diesel price has surged by 15.4 per cent, standing at PKR 227.80 per litre, and the petrol price has increased by 16.3 per cent to PKR 249.80 per litre. Additionally, the government charges nearly PKR 18 per litre on customs duty on petrol and HSD, with both products bringing in nearly 700,000 to 800,000 tonnes per month in revenue.
What is the IMF planning to discuss?
Preceding an IMF package worth nearly USD 1.1 billion to be disbursed in November 2022, Pakistan stands at a vulnerable deadlock with the IMF, with consequences of delayed economic decisions eroding the purchasing power parity of the population and exposing the import dependency of the country. The IMF’s review mission is due on 31 January, following the refusal of the agency to sanction its next round of funding until Pakistan follows the conditions of the programme. The review mission would include discussions of fiscal spillages and reconciliation of the figures provided by Pakistan, with a delegation set to visit Pakistan between 31 January and 9 February to discuss the ninth review of the USD 7 billion Extended Fund Facility. Additionally, the mission would also discuss with the government for the release of USD 1.18 billion of the USD 7 billion fund this year. The IMF’s meeting with the government would assess the budget deficit and primary deficit targets of Pakistan, which would escalate with a huge margin and would lead to a potential release of the next tranche of funds, with the IMF asking Pakistan to take additional taxation measures worth nearly USD 600 billion to escalate its primary deficits.
Jawwad Rizvi & Khalid Mustafa & Mehtab Haider, “Finance minister says big decisions will have to be taken to get country out of economic crisis: Petrol, diesel prices hiked by whopping Rs35 a litre,” The News International, 30 January 2023
Khaleeq Kiani, “After record jump in a day, petrol hits all-time high,” Dawn, 30 January 2023
Zafar Bhutta, “Petrol, diesel prices jacked up by Rs35,” The Express Tribune, 30 January 2023