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Saturday, April 13, 2024

Petrol prices in Pakistan: Rising costs and economic challenges

Expected rise in petrol prices in Pakistan may impact living costs while lowering diesel prices could provide benefits.

Inflation is a persistent problem in Pakistan, affecting the purchasing power of people and causing widespread economic hardships. One of the major contributors to inflation is the prices of petroleum products, which have been volatile in recent years due to global oil prices, exchange rate fluctuations, and government policies. In this essay, we will discuss the latest news about the likely increase in petrol prices by Rs 10-14 per litre for the next fortnight, as reported by The News on Saturday, and its implications for the consumers, the government, and the economy.

Reasons for the Expected Price Hike

According to industry sources, the government may increase the price of petroleum products due to the rising oil prices in global markets. The increase can be up to Rs14 per litre if the government also adjusts the exchange rate losses, unlike the previous review when the authorities didn’t pass on the impact of rupee devaluation to the masses. The ex-depot price of petrol has already reached Rs14.77 per litre for the next review of the prices with the exchange rate loss adjustment. The current ex-depot price of petrol is Rs272 per litre, which may go up to Rs 286.77 per litre if the government decides to pass on the impact of global oil prices and exchange rate losses.

Impact 

The expected rise in the price of petrol will have a ripple effect on the cost of living. The increase in petrol prices will also increase transportation costs, affecting the prices of other goods and services. People who use private transport regularly will be hit the hardest. They will have to spend more money on petrol, reducing their disposable income and limiting their spending capacity. 

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The government has been facing financial difficulties due to budget and foreign exchange deficits. Raising petrol prices will help the government collect more taxes and reduce the burden of subsidies. However, it may lead to inflation and cause people to demand higher wages or prices. The government will have to balance its revenue needs with the potential social and economic costs of higher petrol prices.

Reasons for Exchange Rate Loss Adjustment

The expected rise in petrol prices is also due to the government’s Rs5 per litre exchange loss adjustment of Pakistan State Oil (PSO), which was not included in the past to keep petrol prices low. If the government did not do this, petrol prices would have already been high due to a decrease in the value of the Pakistani rupee against the US dollar. Since the market-based exchange rate was allowed under International Monetary Fund (IMF) conditions, the government is now under pressure to adjust the exchange rate losses and pass on the actual cost of imported oil to the consumers.

Diesel Prices

Diesel price may remain unchanged due to pending PSO adjustment, but could drop by Rs15/litre if PL isn’t applied. This will lower transportation costs, benefitting trucking industry, reducing prices of goods and services, and helping consumers save money. The government needs to balance revenue needs with economic benefits.

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Needless to say the hike in petrol will impact the consumers and disrupt everyday lives. The government may get more money from taxes and reduce subsidies, but it has to consider the social and economic costs. Lower diesel prices, if applied, will help the trucking industry, reduce transportation costs, and make things cheaper for people.