In a move that is likely to be painful for everybody, the government on 31st July increased the prices of petroleum products ranging between Rs 2.73 and Rs 4.99 per litre with effect from 1st August, 2013. The price of petrol was raised from Rs 101.77 to Rs 104.50 per litre, HSD from Rs 106.76 to Rs 109.76 per litre, LDO from Rs 92.17 to Rs 96.12 per litre, kerosene oil from Rs 96.29 to Rs 101.28 per litre, JP-1 from Rs 84.90 to Rs 89.88 per litre, JP4 from Rs 77.86 to Rs 82.34 per litre and JP8 from Rs 84.57 to Rs 89.55 per litre. It was reported that regulatory body had sent a summary for increasing the POL prices as per fluctuations in the international market. The Ministry of Finance, nonetheless, provided a slight relief in the price of HSD as it approved an increase of Rs 3 per litre as against Ogra's calculation of Rs 4.50 per litre. The government also ignored Ogra's proposal not to pass on the full impact of increase in international prices of oil and depreciation of PKR to general consumers during Ramazan and Eid by reducing Petroleum Levy (PL) accordingly.
The latest surge in domestic oil prices would of course have negative consequences for the economy and the lives of ordinary people. As is usually the case in oil importing countries, the rise in oil prices could slow down industrial activity and depress growth prospects of economy, leading to exacerbating the incidence of unemployment and poverty in the country. Prices of all other commodities and services would also increase in direct proportion to the rise in the prices of POL products. All of this is bound to be very painful for ordinary people, especially at a time when growth rate is already stagnant, inflation is likely to be in double-digit and government is increasing the price of electricity by a highly significant margin. Had the PML (N) government not been in its honeymoon period, the hike in oil prices would have been severely criticised by all and sundry and fiercely opposed by other political parties.
However, while the government must be aware about the hardships people are likely to face, it had to face the reality that reduction of budget deficit was the top most priority of the country at the moment and it had to use every option to raise higher levels of revenues. At present, the government is collecting Rs 10 per litre on petrol, Rs 14 on HOBC, Rs 6 on kerosene oil and Rs 8 on HSD on account of Petroleum Levy (PL) in addition to General Sales Tax (GST) on the sale of petroleum products. Any decrease in the PL or GST to absorb the increase in international oil prices would have a negative impact on the budget, forcing the government to borrow heavily from the banking system, leading to accentuation of price pressures, depreciation of rupee and possibly a rupture of present relationship with the International Monetary Fund (IMF). The government could have opted for a lower increase in oil prices if there was some fiscal space available but, unfortunately, the developments in the past few years have been highly unfavourable on this front and the picture for the current year is not yet clear. Expenditures seem to be mounting due to extremely volatile security situation and increasing debt servicing while the problem of losses in the Public Sector Enterprises (PSEs) is still unresolved. In a situation like this, inaction on the part of government could have only aggravated fiscal woes and resulted in macroeconomic instability. The authorities also must be aware that the IMF must be watching the situation very closely and the understanding on its EFF could be jeopardised if the rise in international oil prices and the effect of depreciation of the PKR were not passed on to the domestic market. Keeping all these factors in view, the government did not seem to have much choice in the matter; it has done what was probably unavoidable at the moment. In the meantime, let us hope and pray that the prices of oil in the international market revert to their previous low levels and PKR stabilises in the forex market so that the government does not have to make such tough decisions in future.
Saturday, August 3, 2013
Pakistan: Oil price hike
In a move that is likely to be painful for everybody, the government on 31st July increased the prices of petroleum products ranging between Rs 2.73 and Rs 4.99 per litre with effect from 1st August, 2013. The price of petrol was raised from Rs 101.77 to Rs 104.50 per litre, HSD from Rs 106.76 to Rs 109.76 per litre, LDO from Rs 92.17 to Rs 96.12 per litre, kerosene oil from Rs 96.29 to Rs 101.28 per litre, JP-1 from Rs 84.90 to Rs 89.88 per litre, JP4 from Rs 77.86 to Rs 82.34 per litre and JP8 from Rs 84.57 to Rs 89.55 per litre. It was reported that regulatory body had sent a summary for increasing the POL prices as per fluctuations in the international market. The Ministry of Finance, nonetheless, provided a slight relief in the price of HSD as it approved an increase of Rs 3 per litre as against Ogra's calculation of Rs 4.50 per litre. The government also ignored Ogra's proposal not to pass on the full impact of increase in international prices of oil and depreciation of PKR to general consumers during Ramazan and Eid by reducing Petroleum Levy (PL) accordingly.
The latest surge in domestic oil prices would of course have negative consequences for the economy and the lives of ordinary people. As is usually the case in oil importing countries, the rise in oil prices could slow down industrial activity and depress growth prospects of economy, leading to exacerbating the incidence of unemployment and poverty in the country. Prices of all other commodities and services would also increase in direct proportion to the rise in the prices of POL products. All of this is bound to be very painful for ordinary people, especially at a time when growth rate is already stagnant, inflation is likely to be in double-digit and government is increasing the price of electricity by a highly significant margin. Had the PML (N) government not been in its honeymoon period, the hike in oil prices would have been severely criticised by all and sundry and fiercely opposed by other political parties.
However, while the government must be aware about the hardships people are likely to face, it had to face the reality that reduction of budget deficit was the top most priority of the country at the moment and it had to use every option to raise higher levels of revenues. At present, the government is collecting Rs 10 per litre on petrol, Rs 14 on HOBC, Rs 6 on kerosene oil and Rs 8 on HSD on account of Petroleum Levy (PL) in addition to General Sales Tax (GST) on the sale of petroleum products. Any decrease in the PL or GST to absorb the increase in international oil prices would have a negative impact on the budget, forcing the government to borrow heavily from the banking system, leading to accentuation of price pressures, depreciation of rupee and possibly a rupture of present relationship with the International Monetary Fund (IMF). The government could have opted for a lower increase in oil prices if there was some fiscal space available but, unfortunately, the developments in the past few years have been highly unfavourable on this front and the picture for the current year is not yet clear. Expenditures seem to be mounting due to extremely volatile security situation and increasing debt servicing while the problem of losses in the Public Sector Enterprises (PSEs) is still unresolved. In a situation like this, inaction on the part of government could have only aggravated fiscal woes and resulted in macroeconomic instability. The authorities also must be aware that the IMF must be watching the situation very closely and the understanding on its EFF could be jeopardised if the rise in international oil prices and the effect of depreciation of the PKR were not passed on to the domestic market. Keeping all these factors in view, the government did not seem to have much choice in the matter; it has done what was probably unavoidable at the moment. In the meantime, let us hope and pray that the prices of oil in the international market revert to their previous low levels and PKR stabilises in the forex market so that the government does not have to make such tough decisions in future.
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