The question is why the successive governments are too fixated on the petroleum prices. The question is why this has become make and break for everyone. Yes, it has an impact on direct and indirect inflation. Yes, it does impact the affordability of the common man. But by not doing this the economic impact is much bigger. Now the IMF is saying in plain words that there are no talks without removing the subsidies. Just do it.
Media has role to play. Since ages, any upward movement in petroleum prices is termed as petrol bomb and whosoever in opposition beats the bush about it. 2008 crisis was magnified by prolonged fuel subsidies. And 2022 could be even worse. There are implications on the currency, interest rates and overall business sentiments due to indecision. The fuel price surcharge on electricity is growing due to rising prices in dollars and that is being compounded by PKR depreciation.
The currency has moved from 180 to over 200 against the USD due to inaction on the fuel prices, as IMF progarmme is in limbo just because of this. The price differential is increasing every day with no decision. And eventually the nation has to pay it from the nose. Better to do today and let the demand to adjust.
The prices of food items (especially perishable) are volatile at any fuel prices. See the movement of tomatoes. See how the chicken prices move, and the list goes on. Nobody talks of exponential increase in real estate prices and lack of tax in it and how housing is becoming dearer for the middle class. Bigger issues are kept under the carpet while fuel prices have become the biggest national security issue in the country.
The price increase could be reduced by Rs16-20 per litre if the currency moves back from 200 to 180 and there is no reason if the right actions being taken this would not have happened. The broader inflation and sentiments implication due to the currency freefall is much higher than fuel price adjustments.
The government needs to take actions now. The writing is very clearly written on the walls by the IMF. The establishment is clear on it. The government cannot twist any more. Shaukat Tarin did this. Now the current government is doing the twisting even uglier. Stop this, take actions, or leave.
The government needs to take smart steps. Start increasing prices in staged manner without any delay. Get the IMF back on track. Let the currency come back to its right value. Let the money flow from others to avoid default like situation. Show courage and do what is right.
The HSD margins are exuberantly high. These cannot sustain and would come back. Government may not have to increase prices by Rs100-150 to gain full taxes. The refinery margins are too high and 60 percent plus HSD consumption is from domestic refineries. The government can alter refinery margins to lower the need of price increase.
The world is moving toward recession. Global interest rates are rising. Demand to disrupt sooner or later. Next year would be difficult in terms of inflation and low growth. Don’t make it worse and do what is required without wasting anymore time.
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