Fuel price cut

The finance minister’s recent announcement of fuel price cuts will provide some welcome relief to a country that is feeling the crush of record inflation, yet it still feels like a drop in the ocean. For one, the drops of Rs8 on petrol and Rs5 on diesel only represent reductions of about 3% and 2%, respectively. The government’s defence is that the reduction has come despite no significant change in international prices, but despite some erratic movement, prices have actually declined by about 4% since the previous fuel price reduction was announced in mid-May. At the same time, the dollar rate — at least the official rate — has been consistent at around Rs285.

Meanwhile, the government has forced itself into a corner with tall claims about how Russian oil imports would miraculously bring down fuel prices. Now that we are on the verge of receiving our first shipment of Russian oil, the petroleum minister is trying to bring down the same public expectations that the PDM and PTI governments spent years building up. Maybe this criticism could have been avoided if Russian imports had not been painted as a silver bullet. Still, we hope that Russian imports and processing facilities can be expanded quickly to take advantage of suppressed prices — world powers have restricted the prices Russia can charge for oil as a response to the war in Ukraine. India and China were already large importers of Russian oil before the war and have seen noticeable windfalls from the price reduction, leaving us as the biggest regional country not to benefit.

It must also be noted that while the nominal prices of different fuels in Pakistan remain relatively low compared to other net importers, crashing purchasing power has made the commodities unaffordable. Given that a significant share of the price is taxes, the government needs to reexamine its revenue streams to satisfy IMF conditions while also reducing fuel prices further, at least until Russian oil-based petroleum products enter the domestic market and their impact on prices can be seen by consumers.

Published in The Express Tribune, June 2^nd, 2023.

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