THE caretaker government has sharply raised fuel prices for the second half of August to a record high, putting further pressure on a public that is already contending with elevated inflation. With its hands tied tightly behind its back by the IMF’s conditions for the recently approved $3bn loan, the new caretaker administration of Prime Minister Anwaarul Haq Kakar had no option but to pass on the increase in international oil prices to Pakistani consumers in order to meet the fiscal goals of the lender’s short-term bailout. With the new per litre petrol price spiking to Rs290.45 and diesel to Rs293.40, the finance ministry data shows that petrol is 24pc more expensive than what it was exactly a year ago, and 35pc dearer than its lowest point over the past year in December 2022. The latest increase in fuel prices comes a fortnight after a similar hike by the PML-N-led coalition government. It means that petrol prices have soared by around 15pc in just two weeks. The fuel prices include a customs duty of Rs18-20 per litre and a petroleum development levy of Rs50 a litre on diesel and Rs55 on petrol. It goes without saying that the two fuel levies are a major revenue spinner for the government that has time and again baulked at the idea of withdrawing tax exemptions for powerful agriculture, retail and real estate lobbies that would have increased its income.

The rise in fuel prices is considered highly inflationary since it drives a broad-based increase in prices. With consumer price index inflation rising to 28.3pc year-over-year in July, in spite of a high-base effect, the latest hike in petrol and diesel prices is going to further squeeze the wallets of working people across the country. The IMF has forecast that average CPI inflation will remain around 26pc this fiscal year. Soaring inflation is also going to exert pressure on the exchange rate as the dollar inflows, especially non-debt creating FDI and workers’ remittances, continue to decline. The consistently rising prices and weakening exchange rate will force the central bank to raise the interest rates from the present 22pc. Unless the interim government and subsequent dispensations stick to the reforms agenda to tackle deep-seated structural issues, this imported inflation and heavy indirect taxation will continue to worsen living conditions for low-middle-income Pakistanis.

Published in Dawn, August 17th, 2023