Federal Finance Minister Miftah Ismail has announced that the government is not in a position to bear subsidies on petroleum products anymore, therefore, it has decided to increase the prices of petrol by Rs24.03, taking it to the record high of Rs233.89 per litre from midnight of June 16.
This is the third cut in fuel subsidies in about 20 days. The prices of high-speed diesel (HSD), petrol, kerosene and light diesel oil (LDO) have gone up by a massive 83pc, 56pc, 73pc and 68.4pc, respectively, since May 26.
The new prices diesel will be Rs263.31, kerosene oil will be sold for Rs211.43, and the price of light diesel oil will be Rs207.47, the minister announced.
Speaking at an unscheduled news conference with Minister of State for Petroleum Musadik Malik, Finance Minister Miftah Ismail said the price increase was inevitable “to save the country from the default”.
He criticised the previous government’s policies that, according to him, “ruined the country’s economy”.
“Imran Khan had deliberately reduced the prices of petrol by giving subsidies,” Miftah said, adding that the incumbent government was bearing the brunt of those decisions.
He said that currently, Pakistan, on every litre, was bearing a loss of Rs24.03 on petrol, Rs59.16 diesel, Rs39.49 kerosene oil, and Rs39.16 on light diesel oil.
He said that in May, this loss had gone past Rs120 billion — three times greater than running the expenses of the civil government, which amounts to Rs40 million.
The decision was not an easy one, as this would increase inflation and consequently add to people’s miseries, he said but insisted that the previous government and challenging global market conditions had left no other option.
He said the prices of all products had now been brought to their purchase price and the element of subsidy or price differential claim had been eliminated.
“There is no more government loss on the sale of petroleum products,” he said, hoping to conclude an agreement with the IMF for reviving loan support.
The IMF wants Pakistan to take strict measures to control its fiscal deficit in the face of a balance-of-payments crisis.
According to the finance minister’s announcement, the ex-depot price of HSD has been fixed at Rs263.31 per litre instead of Rs204.15, an increase of 29pc (or Rs59.16). The fuel’s price has jumped 83pc since May 26 from Rs144.15 per litre.
The price of petrol (motor spirit) has also been increased by 11.4pc or Rs24.03 per litre to Rs233.79 from Rs209.86. The price of petrol has increased by 56pc from Rs149.86 per litre before May 27.
Likewise, the price of kerosene has been increased by 16pc or Rs29.49 per litre and fixed at Rs211.43 per litre instead of the existing rate of Rs178.31. Its price has skyrocketed 73pc since May 26 when it stood at Rs118.31.
Also, the ex-depot price of light diesel oil (LDO) has been increased by 16.33pc or Rs29.16 per litre and set at Rs207.47 instead of Rs178.31. Its price has also increased by 68.5pc from Rs125.56 per litre in May.
Miftah said the decision of such a price hike was not easy for any finance minister or prime minister but had become inevitable because of the “unreasonable decision” of the previous government to freeze prices for months.
He hoped that the exchange rate would now improve, markets would stabilise, the economy would balance out and the investor would take positively the government’s will to make difficult decisions.
He said global crude oil prices were hovering around $85-90 a barrel when the previous government decided to renege on a just-concluded agreement with the IMF by removing taxes and reducing prices. This was despite the fact that it had committed in writing to impose Rs30 per litre petroleum development levy and 17pc sales tax on the entire price, meaning taxes of about Rs64 per litre.
Now the international prices have gone beyond $120 a barrel and edible oil prices also jumped 300-400pc. He said petroleum differential losses were causing Rs120 billion monthly loss to the government compared to Rs42bn monthly expenditure of running the entire civil government. “I have not seen such a devastation in the economy over the past 30 years,” he said.
The minister said the government had tried to protect the poor by providing Rs2,000 to eight million households under the Benazir Income Support Programme in June and would increase this support to six million more families in the next fiscal year.
He said the previous government was so incompetent that during the Covid pandemic, when the entire world was witnessing minor inflation rates, Pakistan was among the top three most expensive countries.
The previous government neither signed contracts when oil and gas prices were at $6 nor created buffers for difficult times, he said.
The situation had now come to the point that the country was trying to avoid economic default, he said but hoped the tough times would pass after a few months.
He said the tough decisions were taken in the wake of rising petroleum product prices in the international market and the exchange rate variation because maintaining the fuel prices at subsidised rates was constantly increasing the fiscal deficit and current account gap besides putting pressure on the country’s foreign exchange reserves.
Speaking on the occasion, Musadik Malik said no price increase would have kept a monthly loss of Rs100bn that was almost equal to the country’s defence budget.
He said the previous government had left behind a circular debt of Rs1.4 trillion in the gas sector and Rs162bn in LNG diversion to the domestic sector. “We have taken responsibility to take corrective measures and we will not shy away but take responsibility,” he said.
“Global oil prices are out of our control but I promise the day international crude prices come down to $110 or 105, I will come back to you and announce a price cut,” Musadik said.
He said he realised the difficulties of the people and could imagine that Rs2,000 was nothing, but four million people sent messages on 786 for registration which meant the financial help at least provided some relief.
PTI CRITICISES INCREASE: Reacting to the development, PTI leader Fawad Chaudhry took to Twitter and announced that his party had rejected the hike in petroleum products.
“We reject this robbery in the middle of the night with all our might,” he wrote. “Increase in petrol prices by this much has broken the middle class. People should take part in the protest against this incompetent government.”
Former Minister Farrukh Habib took to Twitter and wrote: “In the last 15 days, the government has increased the price of petrol by Rs 84 and diesel by Rs 120. This is the worst inflationary suicide attack on the people of Pakistan. This slave government is not taking cheap oil from Russia at the cost of which the people of Pakistan are paying.”
In his video message on his Twitter handle, he said the government has taken the clothes off the poor people instead of reducing its expenditure.