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Pakistan Reader# 573, 21 March 2023

Petroleum Subsidy



Pakistan on the precipice of a complete financial meltdown

Ankit Singh

On 19 March, owing to the depreciation of the currency and a hike in Platts Singapore, a set of Singapore-based oil products, the government increased the prices of all petroleum products by up to PKR 13 per litre for the next fortnight. Petrol now costs PKR 273 per litre in Pakistan. Prime Minister Shehbaz Sharif announced that low-income segments which operate motorcycles, rickshaws and small cars would be given a subsidy of PKR 50 per litre under the petroleum relief package. Since 15 January, the government has increased the prices of HSD and petrol by PKR 65 and PKR 62 per litre, respectively. The subsidy will cost the government to eke out an additional USD 420 million to cushion the population in the low-income segment. Additionally, on 20 March, the Minister of State for Petroleum announced that the government will charge PKR100 more for petrol from the affluent so that relief could be provided to the low-income segments in fuel tariffs. However, the term affluent has not been discussed or defined yet. The Minister affirmed confidence in the stratified charging of petroleum as the government had charged gas tariffs to provide relief accordingly.

According to an editorial in The Express Tribune, the hike in petroleum will do more damage than the relief provided to the poor as the hike in petroleum products will have a snowball impact on higher commodity prices. According to another editorial by Shahbaz Rana in The Express Tribune, IMF was not kept in the loop before announcing the relief/subsidy package and it may distort the early completion of the staff-level agreement with the IMF over the USD 6.5 billion EFF programme. The free wheat flour scheme was parallelly announced in Punjab and KP and the editorial mentioned that the scheme would further reduce the conditional surplus targets of the provincial government committed to IMF.

According to an editorial by Ammar Habib Khan in The News International, the relief would increase demand for fuel and increase pressure on forex reserves. The package can also potentially form a parallel market for petrol and nullify the objectives of the subsidy package. He further adds that such a ‘misguided adventure’ can likely push Pakistan to the precipice of a complete financial meltdown.
 
References
(“Petrol subsidy?,” The Express Tribune, 21 March 2023)
(Shahbaz Rana, “ Govt’s subsidy plan raises red flags,” The Express Tribune, 21 March 2023)
(Ammar Habib Khan, “News Analysis: Funding fuel subsidy,” The News International, 21 March 2023)

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