 |
| IMF condition, rupee value, or global market: What is the cause of petrol price hikes? |
Last night, when Pakistan's Finance Ministry increased the prices of petroleum products by Rs 10, the government pointed to rising prices in the global market.
It should be noted that with the recent increase, the new price of petrol has reached 282 rupees per liter which is the highest price of petrol in the history of the country.
However, the concern was expressed on social media that there is no new condition of the IMF behind this decision and can the prices of petroleum products be increased further?
Before knowing the answer to this question, let's see how much the prices have been increased so far under the current government.
How much did the price increase during the current government?
On April 10, 2022, the day the Pakistan Tehreek-e-Insaf government ended, the price of petrol was 149.86 per liter.
The present government has increased the price of petrol 11 times since coming to power on 10 April 2022, which is a total of Rs 181.32.
During this period, the government also reduced the prices five times, which is a total of Rs 49.18. That is, the PDM government has increased the price of petrol by a total of Rs 132.14 during one year of its government.
In July 2022, the price of petrol was 248.74 per liter, which was the highest level in history at that time. In January this year, the price of petrol was increased by Rs 35, which was the largest one-time hike in the country's history.
And during this year alone (from January 2023 to April 16, 2023), the government has so far increased the price of petrol by Rs 67.2 per liter.
In such a situation, most people in Pakistan believe that the recent hike in petrol prices is part of the IMF's new conditions.
One user, reacting to recent prices, wrote that borrowing from the IMF has brought the country to the brink of collapse.
Many people also believe that the prices of petroleum products are decreasing significantly all over the world, but in Pakistan, people are being pushed into more inflation.
Abdul Hanan Khan says that "In the last year, petroleum products have decreased by 20 percent in the world market, while in Pakistan, they have increased by 100 percent."
"Now even the cheap oil of the world market is expensive for us"
Pakistan Tehreek-e-Insaaf leader and former federal minister Hamad Azhar also agree with this.
Reacting to the increase in petrol prices, he said that when the price of oil in the world market was at the highest level, then the price at the petrol pumps in Pakistan was only Rs 145 and 150 per liter. The price in the global market is much lower than that high level, but in Pakistan, the price has reached 282 rupees.
Criticizing the government, he added that the reason for this is the disastrous rule of the PDM. The Pakistani rupee has lost 100 rupees against the dollar in just one year. Now even the cheap oil of the world market is expensive for us.
What is the reason for the recent hike in petrol prices, due to IMF's new condition, depreciation of the rupee, or increase in oil prices in the global market? The BBC spoke to economists to find out.
'Recent increase has nothing to do with IMF conditions
Economic journalist Shehbaz Rana, speaking to the BBC, dismissed the impression that the recent increase was part of a condition of the agreement with the IMF.
"The IMF has only told Pakistan to charge the price of petrol from the consumers."
He says that this demand was not made today but it is quite old. This is the position of the IMF that you cannot sell consumer goods (daily necessities) below their purchase price and there is no new condition of the IMF in this increase in petrol.
Shahbaz Rana says that the increase in petrol prices by Rs 10 per liter was actually increased by Rs 29 per liter. The government has increased Rs 10 instead of Rs 29.
Explaining the reasons why there should have been an increase of 29 vara per liter, he says that there have been losses due to the exchange rate, depreciation of the rupee makes exports expensive and as of today, the price of petrol is Rs 301. per liter is made.
How does this price come to Rs 301 per liter?
Petrol price in the world market
Exchange rate effect
In the past, some of the effects of the exchange rate were deferred by the government instead of being passed on to consumers
It should be remembered that Pakistan buys oil from the world market in dollars.
Postponing oil price hike 'is not a good decision by the government
Shehbaz Rana says that the government has just passed on a little impact of this exchange rate to the people and delayed the rest.
Regarding the effect of a delayed exchange rate, Shahbaz Rana says that it has two forms:
This amount will be collected from the customers in the next increment on May 1
Or will it go into the money owed to Pakistan State Oil (PSO) and other marketing companies
Shahbaz Rana believes that delaying the increase in petrol prices is not a good decision for the government.
According to Shehbaz Rana, the levy at the current price is Rs 50 per liter, apart from this, the margins of dealers and oil companies total Rs 12-14 and the remaining petrol price is Rs 215 per liter.
But how much can petrol prices rise in the future?
Shahbaz Rana says about this that it depends on the petrol prices in the world market on that date (e.g. order of May).
The value of the Pakistani rupee and how much of the exchange rate effect the government intends to pass on to consumers depends on these three factors. Nothing can be said before 15 days, the new price may be Rs 301 or more or less.'
"Government has no option"
Shahbaz Rana believes that 'the government has no option, today or tomorrow it will have to transfer this increase to the consumers, otherwise it will once again become a subsidy issue.'
He says the government cannot afford direct subsidies because the IMF will not allow them.
According to Shahbaz Rana, the prices can increase even more because the economic conditions of Pakistan are not good, and in such a situation, the value of the rupee is not likely to strengthen, but it can fall further.
"If the government improves its economic situation, cash will come from foreign countries, the value of the rupee may improve a little with the increase in foreign exchange reserves, otherwise it will fall further."
Is there a possibility of a drop in oil prices in the country after the arrival of oil from Russia?
Neighboring India is buying about 1.2 million barrels of crude oil per day from Russia. And a few weeks ago in the 'Jirga' program of 'Jeo News' Pakistan's Minister of State for Petroleum Mossadegh Malik claimed that the government will place the first order of Russian crude oil next month which will take about 26-27 days to reach Pakistan. It will reach the country by sea.
He said that "Russia has assured us that it is giving Pakistan as much concession as any other neighboring country is receiving."
So, is there a possibility of a drop in oil prices in the country after the arrival of Russian oil?
About this, Shahbaz Rana says that "Musaddeq Malik's claim is that the first container of oil from Russia will reach Pakistan next month. If this happens, then (as much as they give a discount) in the purchase price." Something will be lacking.'
However, he also says that 'that discount will reach the customers or not and the amount of the discount will be lost in the exchange rate, nothing can be said about it.'
It is certain that the cheaper the oil will be from Russia, the less the burden will be on the consumers.