Truly, a petrol ‘bomb’

The government’s decision to increase the price of petrol by over eight per cent is sure to lead to outrage, protests.

The government’s decision to increase the price of petrol by over eight per cent is sure to lead to outrage and street protests, especially since petrol prices have now crossed the psychological barrier of Rs 100. The primary reason for this is the fact that the international prices of oil have been increasing at a stunning rate. Since Pakistan imports more than 80 per cent of its energy, the government has been left with no choice but to institute price hikes on petroleum products. Indeed, even at its current price, the government is subsidising petroleum products. What can be questioned is whether the government needed to increase the price by quite as high a percentage as it did.

It is incumbent on the government to realise that increasing the price of petrol sends ripples throughout the economy. Petrol and diesel are vital to Pakistan’s economy and so an increase in its price will lead to an attendant increase in the prices of other essentials. The transport of food, for instance, will now become more expensive which will obviously lead to an increase in the prices of essential food items. Our economy has suffered enough inflation in the last few years without the government all but guaranteeing further price increases across the board.

Buying oil on the international market has also been steadily becoming more expensive for the government because its actions have contributed to the depreciation of the rupee against the dollar. True, part of the reason for the depreciation is that Pakistan spends such a large amount of its foreign currency reserves on oil. But shortsighted decisions like deciding not to seek an extension of the IMF programme as well as worsening ties with the US have greatly contributed to the depreciation of the currency. Subsidising petrol is vital, but in order to ensure that it can afford to do so the government needs to get its economic priorities straight. It may not be able to do anything about the vagaries of international oil prices but it can seek alternatives to oil and get its own economic house in order.

Published in The Express Tribune, April 3^rd, 2012.