In his maiden press conference, Finance Minister Ishaq Dar on Friday announced to cut petroleum products prices up to Rs12.6 per litre or 5.4% by making adjustments in taxes but still keeping those significantly lower than the International Monetary Fund requirement.
The decision is likely to provide a major relief to the inflation-stricken people who have been exposed to inflationary pressures, because of mismanagement of the exchange rate regime in addition to the global commodity prices impact.
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The fresh price reduction is exclusive of any positive impact of the rupee strengthening that is expected to be felt in the next price determination.
The petrol price has been reduced to Rs224.80 per litre from Rs237.43 after a reduction of Rs12.63, said the finance minister. Effectively, the petrol prices, which is the most consumed petroleum item, have been reduced by 5.3%.
The initially proposed reduction was lower than what Ishaq Dar announced, as he created room for deeper cuts by lowering the petroleum levy rate by Rs5 to Rs32.42 per litre. The former finance minister, Miftah Ismail, had increased the petroleum levy rate to Rs37.42 last month when he was in fact required to set it to a maximum of Rs30 per litre.
However, under the deal with the IMF, Pakistan was supposed to increase the petroleum levy to Rs40 per litre on October 1st. Ishaq Dar has, for now, kept the taxes lower than the IMF deal in the hope to secure some concessions during his first visit to Washington this month.
Ishaq Dar told The Express Tribune that he would attend the annual meetings of the World Bank and the IMF. He is expected to take up the issue of getting concessions from the IMF in the aftermath of the devastating floods.
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Ishaq Dar also said that the high-speed diesel price has been reduced by Rs12.13 per litre or 4.9%. It will now be sold at Rs235.30, down from the existing Rs247.43, the minister said. He increased the petroleum levy rate on high-speed diesel to Rs12.58 per litre -up from Rs7.58.
Still, the rate is significantly lower than the requirement determined by the IMF to collect Rs855 billion in petroleum levy by gradually increasing these taxes to Rs50 per litre on all petroleum and LPG products.
The new prices will come into effect at midnight tonight, the Finance Minister said.
Similarly, kerosene oil’s new price will be Rs191.83 following Rs10.19 or 5% reduction, said Dar.
Earlier, the kerosene oil was sold at Rs202 per litre. The government has kept the petroleum levy rate on kerosene oil at Rs15 per litre.
Dar said that light diesel oil’s price will be Rs186.50 per litre after a decrease of Rs10.78 or 5.4%. The old price was Rs197.28 per litre. The government will charge Rs10 per litre levy on light diesel oil.
Ishaq Dar said the decision to reduce the prices has been taken after a “detailed discussion” with Prime Minister Shehbaz Sharif.
The move will provide a major relief to the people who are bearing record fuel and electricity prices. One of the reasons behind the higher prices of these items is the irrational depreciation of the rupee against the US dollar till last week.
During this week, the rupee covered Rs11.20 a dollar or 4.7% of its lost value, without any improvement in the economic fundamentals. There are strong signals that commercial banks have heavily manipulated the dollar price for their vested interests. These banks made an undue profit of Rs27.7 billion during the April-June quarter of this year on account of foreign exchange earnings.
The State Bank of Pakistan has given show cause notices to these banks but is still shy of imposing heavy penalties, including a possibility to get the concerned officials of these banks sacked for manipulation of the currency that caused a national crisis-like situation.
The global crude oil prices are also on a downward trajectory and were traded at around $87 per barrel on Friday. Ishaq Dar is also expected to review the petroleum prices determination formula, which is currently tilted in favour of the oil marketing companies.
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