Petrol, HSD: Daily pricing adjustment

EDITORIAL: The government’s decision to adjust the price of petroleum and products on a daily basis from 18 July this year rather than on a weekly basis has merit given the daily, on some days hourly, fluctuations in their international price. This decision was taken subsequent to renewed hostilities in the Middle East that effectively constrains the number of oil tankers allowed to pass through the Strait of Hormuz to between 15 to one or two against over 140 to 150 per day pre-28 February.

In July, the government acknowledged it would impose fresh hardship on the general public, a hardship that would not only further undermine the quality of life of 42.4 percent of the population living under the poverty line Pakistan as per the World Bank in 2025 but also increase the number of those below the line. While the poverty line for Pakistan as determined by the World Bank estimated an income of 3.65 dollars per day, applicable to medium income countries, yet there is a growing concern that transport costs have severe repercussions on the price of perishable food items, and no doubt contributed significantly to food inflation estimated at 10.6 percent in July this year; in addition, rising petrol prices have compromised the capacity of those employed to reach their place of work (the government has calculated an unemployment rate of 8 to 9 percent though independent economists estimate it at 22 percent based on the Labour Force Survey carried by the Pakistan Bureau of Statistics) as well as raises the cost for those enrolled in educational institutions.

Critics, however, argue that the daily fluctuations in the prices do not reflect the cost of the purchase as that is secured in bulk and not on a daily basis. Be that as it may, the international prices of oil, futures and present, are changing daily, premised on statements by the US President (threats against Iran followed by claims of negotiations) and launch of actual hostilities in the Middle East.

The fact, however, remains that reliance on petroleum levy to the tune of 1.67 trillion rupees in the current year and placing it under Other Taxes that precludes sharing with provincial governments under the agreed National Finance Commission award, was agreed with the International Monetary Fund (IMF) under the ongoing programme. Additionally, in the Finance Act 2027, the government as per its commitment to the Fund under the Resilience and Sustainability Facility (1.6 billion dollars) raised the climate levy from 2.50 rupees per litre to 5 rupees per litre.

These revenue sources are critical to enabling the government to meet its commitments to the Fund, including the budget deficit, and these constitute an easy way to collect tax with petrol stations collecting it at the point of sale rather than the Federal Board of Revenue. This led to strike action by the All Pakistan Petrol Pump Association who agreed with the government’s proposal to increase the dealers’ commission from 8.64 rupees per litre to 9.98 rupees per litre – a rise that averted the threat of a nation-wide strike, though this would add to the price of the commodity at the pump.

Productive sectors have also expressed concerns that the daily adjustment to the prices of petrol and products, key inputs for most productive activities, has disabled them from projecting input costs that, in turn, impact on decisions relating to investment, current and future.

At present, the global economy is facing a recession and Pakistan is no exception. On the contrary, we face a more difficult situation, given the continued heavy reliance on foreign borrowing, including the 3 billion-dollar dual tranche Eurobond transaction – 1.75 billion dollars on a 5.5 year bond (at 7.5 percent) and 1.25 billion dollar on a 10 year bond (7.9 percent) – rates that are prohibitively high, a fragile economy with a decline in foreign investment and rising poverty levels. What this country require are out of the box solutions and a concerted effort to slash its own expenditures, particularly with respect to borrowing costs, and also enable it to reduce the application of multiple taxation on petroleum products that is eroding competitiveness of our productive sectors of the economy.

Copyright Business Recorder, 2026