PPP senator foresees another Rs30 per litre hike in petrol price

Pakistan Peoples Party (PPP) Senator Mustafa Nawaz Khokhar on Saturday predicted another Rs30 per litre rise in tariffs of petroleum products.

"IMF might not be satisfied with the current hike [in petroleum products]. [The government] might also have to give a tough budget as well," he wrote on his official Twitter handle.

Mustafa, whose party is also a part of the coalition government, criticised the government's handling of the economic crisis. "The theory goes roughly like this: Let’s do what the IMF says, give a tough budget & we’ll give relief to the public next year, then we’ll happily head to elections. Sure but how certain are we that boys will let us reach that finish line," wrote the PPP leader, in a reference to the establishment.

He further said that the decision to go to IMF should be taken by a government with fresh mandate.

The statement came days after the government increased the petroleum products rates by Rs30 per litre, or up to one-fourth of their existing prices, paving the way for reaching a staff-level agreement with the International Monetary Fund by June 12.

The unprecedented decision will help defuse the landmines laid by the government of former prime minister Imran Khan on the one hand, and will save the country from looming default on the other.

Finance Minister Miftah Ismail made the decision public in an unscheduled news conference after Prime Minister Shehbaz Sharif gave him the go-ahead in a party meeting.

With the fresh hike, the new price of petrol will be Rs179.88 per litre – the highest ever rate – and showing an increase of 20% over the existing prices. Ismail said that it was a “difficult decision that will erode political capital” of the government.

“The government was giving Rs56 per litre subsidy and I have only reduced the loss by Rs30 per litre,” said Miftah while addressing the news conference. High-speed-diesel new price will be Rs174.86 per litre, showing an increase of 20.8%.

Read more: PM unveils Rs28bn relief package

Miftah said that the government was giving Rs86 per litre subsidy, and in the first batch it has reduced the subsidy amount by only Rs30.

“The government cannot take the country towards default and is ready to pay the political cost for the sake of protecting the interest of the state,” said the finance minister.

On Friday, Prime Minister Shehbaz Sharif announced a new relief package of Rs28 billion per month to “protect the poor from the impact of inflation”.

In his maiden address to the nation a day after his government caved in and fulfilled IMF’s condition, the prime minister defended the move as a “necessary measure to prevent the country from going bankrupt” and blamed the previous government for “destroying the country’s economy”.

Under the relief package, Shehbaz said that the poor families across the country would be paid Rs2,000 each, while stipends would be given to the deserving families through the Benazir Income Support Programme (BISP), adding that the utility stores had been directed to sell 10kg flour bag at Rs400.

Also read: Govt caves in to IMF, drops petrol bomb

“We increased the prices of petroleum products with a heavy heart. We sacrificed political interests and preferred the national interest to pull the economy out of the current crisis,” he said. “We will take every decision and do everything possible to advance the journey of national development.”

The next big action that the government is now required to take is to increase electricity prices by Rs5 per unit with effect from June 1, said the sources.

The total increase in the prices will be around Rs12 per unit that will include the withdrawal of Rs5 per unit electricity subsidy and the quarterly and annual tariff adjustments.

However, the decision will stoke inflation that was already at 13.4% in April -- the highest in two years. The government had a choice to take the hit by increasing the prices or let the rupee weaken in the absence of an IMF deal, with thin foreign exchange reserves that could have caused hyperinflation.

But the government moved only after the IMF refused to sign on a staff level agreement until Pakistan takes corrective measures, including reversal of fuel subsidies and an agreement over next year’s budget.

The government’s decision to increase the prices at the expense of the political capital suggests that it might have won a nod from the establishment to stay in power longer than earlier thought.

The government had refused to take tough decisions and then call snap elections just to pave the way for the victory of the PTI.

The journey towards restoring the macroeconomic stability may also help stem the rupee losses that dipped to the new lowest level of Rs203 to a dollar on Thursday. The foreign exchange reserves also dropped to $10 billion, according to the central bank.