Pakistan’s political regime changed in April, with Shehbaz Sharif taking over as prime minister after Imran Khan lost a vote of no-confidence. Oil price shocks have raised serious concerns among policymakers around the world because of their adverse impacts on net oil-importing economies. In addition, lower debt GDP ratio, lower deficit spending, lower real effective exchange rate, and the existence of foreign exchange reserves and capital investment would cause output to rise.
The federal government dropped a fuel bomb on the nation after it suffered an electric shock to meet the conditions imposed by the International Monetary Fund (IMF) for the revival of the stalled loan programme signed with the global lender during the previous PTI regime. The federal government decided to increase petrol prices in Pakistan by Rs30. On other hand, the government agreed to maintain sugar and wheat rates at Rs70 per kg and Rs40 per kg, respectively, in utility stores across the nation.
According to government policy, price of petrol in Pakistan is updated twice per month. The OGRA determines the price of fuel in Pakistan. The cost of fuel in Pakistan is determined by different elements, one of which is availability. OPEC’s reduced supply to other governments raises the price of oil in other governments as well. Increasing transport and marketing costs significantly influences petrol prices, as individual dealerships add their profits to the overall cost of fuel. In addition, petrol prices are rising due to increased federal and state taxes.
Despite an inevitable increase in the prices that will unleash a strong wave of inflation.
The coalition government remains short of clinching a deal with the International Monetary Fund. The government has changed, but the rise in petrol costs has remained consistent. Due to public discontent, fuel prices have reached their highest possible level in history. Let’s see how lit progresses in the future.
However, the federal government has announced a relief package in light of the increase petrol prices, which will provide Rs2,000 stipend to the poor through Benazir Income Support Program (BISP). Prime Minister Shehbaz Sharif added the programme would provide relief to 14 million families across Pakistan.
After the PML-N-led coalition government came into power, the electricity sector has spiraled out of control because of prolonged outages. The recent increase in fuel and electricity rates will add to the miseries of the people, who are already feeling the heat of runaway inflation. Experts say that increase in fuel prices and tariff rates would also bring about another flood of inflation in Pakistan as it would increase the cost of doing business in the country.
Due to higher fuel and energy costs, the prices of all products in Pakistan will further rise. The price increases came after the government and the IMF failed to reach a deal on an economic bailout, owing to the former’s ambivalence on fuel and power subsidies and the resulting budget uncertainty for next year.
Meanwhile, opposition leaders slammed the administration for raising fuel prices to unprecedented highs, claiming that it was failing to handle the economy. PTI Chairman Imran Khan urged people to protest the government’s anti-people policies of massive price hikes to crush the poor and create economic chaos in the country.
Rapid rises in the prices of crude oil in the decade of 2000s have raised concerns among policymakers around the world, as the theoretical and empirical literature has established that oil prices shocks may have an adverse impact on the macro economy of the country.
In particular, for the oil importing developing countries like Pakistan, this upward trend in the price of oil can have serious repercussions in terms of creating inflationary pressures in the economy, increasing budget deficit and balance of payment problems, and thus affecting GDP growth.
Oil prices have fluctuated enormously in recent years. Strong volatility in oil prices has serious implications for Pakistan’s economy given its substantial dependence on imported fuels. Energy prices have a crucial role behind inflation rates in Pakistan. In the economic sphere, heightened inflationary pressures through a steep rise in commodity prices, particularly those of oil and wheat, is likely to be the most significant global fallout in the short run.
An increase in oil prices leads to inflation, increase budget deficit and puts downward pressure on exchange rate which makes imports more expensive. The rising oil prices are the major concern for all the developing economies and Pakistan is suffering from it too. Oil prices increases are generally thought to increase inflation and reduce economic growth.
In terms of inflation, oil prices directly affect the prices of goods made with petroleum products. As mentioned above, oil prices indirectly affect costs such as transportation, manufacturing, and heating. The increase in international oil prices, application of additional petroleum levy and currency devaluation are considered to be the main reason for the price hike.
Rezwan Ullah, School of Management and Economics, Beijing, also contributed to this article.
