The Government of Pakistan dropped another petrol attack on the directives of the International Monetary Fund, which is likely to create rippling effects far from petrol stations while sending shockwaves to the crippling economy.
Some experts identified that it is feared that the massive fuel hike will end up being passed on to not only everyday Pakistani citizens whose wallets are feeling the strain already – but will also shut down further industries, and hit employment and households.
| OPEC Basket Price | |
|---|---|
| Date with Year | Value in $ |
| 01/02/2023 | 81.88 |
| 01/01/2023 | 81.62 |
| 01/12/2022 | 79.68 |
| 01/11/2022 | 89.73 |
| 01/10/2022 | 93.62 |
| 01/09/2022 | 95.32 |
| 01/08/2022 | 101.9 |
| 01/07/2022 | 108.55 |
| 01/06/2022 | 117.72 |
| 01/05/2022 | 113.87 |
| 01/04/2022 | 105.64 |
| 01/03/2022 | 113.48 |
| 01/02/2022 | 93.95 |
According to the statistics released by PBS (Pakistan Bureau of Statistics), the annual inflation in January 2023, measured through the Consumer Price Index (CPI) has jumped to a decade-high level of 27.6 percent on year on year (YoY) basis, as against to 24.5 percent in last month and 13 percent in January 2022. Statistics showed that the CPI of 27.55 percent, is the highest one after May 1975 when it posted 27.77 percent. The inflation has spiked to the highest level in 48 years at a time when thousands of containers of food products, raw materials and equipment are stuck in ports after the cash-strapped government curtailed imports.
Experts identified in their studies that the impact of fuel price shocks is to rely on crude oil prices, as data on domestic fuel prices are scarce, mainly at a high frequency. Since domestic fuel prices in various developing states are regulated, changes in contemporaneous crude oil prices may be a poor proxy of the domestic fuel price dynamic. For advanced economies, it is noted that the rationale is that with fuel prices completely liberalized, utilizing either crude oil prices or retail fuel prices should lead to the same consequences. But ignoring the other components of the retail fuel prices can lead to a significant bias. Indeed, refinery margins fluctuate; changes in taxes take place; weather-related events affect domestic fuel prices; and the structure and regulation of the petroleum market matter.
As a consequence, variations in crude oil prices can fail to mimic of domestic fuel prices. They also identified that households do not consume goods and services in the same proportion, consequently, they are impacted differently depending on the response of the prices of their basket of consumption to fuel prices. It is well known that the poor devote a higher share of their spending to food, making them highly vulnerable to fuel price shocks as food prices are quite sensitive to changes in fuel prices, largely because of transport costs.
No doubt, Pakistan is projected to register economic growth of negative 1 percent in the present fiscal year 2023 as against 6 percent expansionary growth taken in the last fiscal year 2022. To recall, about half of the businesses in Pakistan, have already shut down partially or fully and rendered 5 million to 7 million people jobless in the wake of the ongoing economic crisis of the previous year. It is said that the government of Pakistan has to take care of the poor segment of society by giving them direct subsidies. They also said that the hike in petrol prices would originally stop businesses as well as households.
However, later on, the decision over a period of time would slowly turn around pessimistic developments into optimistic ones. The Rise in petroleum product prices would also raise the cost of transportation for every citizen of the country. This will negatively impact the supply chain management of goods and people, leaving a multiplier impact on the economy inflation will go up considerably. The Hike in petroleum product prices was inevitable under the IMF loan program of $7 billion, as the lending institution demanded the government of Pakistan passes on the raise in international prices to end-consumers in Pakistan.
Presently, the government had to increase petroleum product prices, as it had no other option. The impact would have not been this severe if the present government had sustained a market-based rupee-dollar exchange rate. The impact of the rise in petrol prices has always remained pessimistic on businesses and households. It is also said that people’s consumption of goods cut down, as the cost of goods goes up but their disposable income remains equal.
People cannot compromise on food consumption, but they avoid other expenses such as traveling and etc. The Petrol price hike would cut imports, reduce the current account deficit and help improve Pakistan’s foreign exchange reserves, going forward. Improvement in reserves would permit the nation to slowly open up imports that are lying closed at present. Accordingly, this will slowly enhance business activities and enhance employment also. It is projected that inflation is again going to skyrocket starting with petroleum prices would increase in the future.