Raising the Country’s Fuel Prices

In an effort to control the country’s ballooning budget deficit, Pakistan’s government announced “plans to phase out politically sensitive fuel subsidies during the new financial year,” reported the Financial Times today. The news outlet added,

The government spent $2.4bn (€1.5bn, £1.2bn) during the fiscal year that ended yesterday to subsidize domestic fuel prices and protect consumers from rising global oil prices. But this has resulted in a rise in the budget deficit, which is expected to reach about 6.5 per cent of gross domestic product, leading to a rethink by government ministers.

One government minister told the FT, “The deficit is unsustainable…We have to pass on all the increase in fuel prices to our consumers. By December 2008, there [will] be no fuel-related subsidies in Pakistan.” According to the AFP, the government, “amid spiraling global oil prices,” raised natural gas prices by 31 percent and petrol prices by up to 20 percent this week to help reduce the deficit. However, the FT reported, “Prices of diesel and kerosene, which are used by far more people, would have to be raised by much more [55-58% and 75-80% respectively], prompting fears of unrest.”

Although the decision to raise fuel prices amid an already burgeoning food crisis promises to further antagonize the Pakistani public, Pakistani PM Yousaf Raza Gilani defended the measure on Tuesday, asserting that “his government wouldn’t flinch from unpopular measures needed to stabilize the economy,” reported Reuters. Gilani told reporters today, “Our government is committed to restoring macroeconomic stability in a reasonable timeframe…Economic liberalization, deregulation and privatisation in a transparent manner will be the core principles of our economic reform agenda.”

Despite these assurances, the rise in the price of petrol was the fifth increase for Pakistanis in four months, noted the BBC. The news agency added, “A liter of petrol now costs 75.69 Pakistani rupees ($1.11), compared with 53.70 in February. Diesel is now 49.05 a liter and a kilogram of compressed natural gas, which many people in South Asia use for cooking, costs 52 rupees.” Moreover, soaring oil and food prices “have pushed inflation in Pakistan to its highest level in more than 30 years,” a development that has deeply affected the country’s population, in particular the poor and middle income people.

To make matters potentially worse, Dawn reported Wednesday, “A ‘calculation/conversion error’ admitted by the federal government in announcing a 13 Rupee increase in price of compressed natural gas (CNG) could have earned gas stations windfall gains overnight, but consumers lost millions of rupees.” Officials “woke up to the error” about 20 hours late, issuing a clarification that the intended increase was actually 5.58 Rupees a kilogram. Although the government “regretted” the inconvenience this mistake may have caused, Dawn quoted some local consumers who were (not surprisingly) outraged. One local Pakistani told the news agency, “It shows the government’s incompetence and its non-serious attitude towards the people already hit hard by price hikes.” [Image from the BBC]