It’s not Ogra, but people’s own govt this time
April 13, 2012
A steep hike in petroleum prices has unleashed a storm of inflation in the country. For the first time in the country’s history, petrol prices have crossed the Rs100 per litre barrier. And for the first time in the country’s history, all three fuels — petrol, diesel and kerosene — will cost over Rs100 per litre. The price of CNG has also been hiked by up to Rs11.55 per kg.
With a Rs8.02 hike, per litre petrol price has jumped from Rs97.66 to Rs105.68, according to a notification issued by the Oil and Gas Regulatory Authority (Ogra). The per litre price of high speed diesel was raised by Rs4.70 – from Rs103.46 to Rs108.16 – while the price of kerosene was raised by Rs5.29 – from Rs96.40 to Rs101.69 per litre.
The price of High Octane Blending Component has been raised from the current Rs126.87 to Rs135.81 – an increase of Rs8.94. In a simultaneous move, the government increased the prices of CNG by as much as Rs11.58 in the country. CNG prices were increased by Rs9.93 to Rs80.98 per kg in Sindh and Punjab.
Meanwhile, the per kg prices were raised by Rs11.58 in Khyber-Pakhtunkhwa, Balochistan and Potohar region to Rs88.70. The government has imposed 20% gas infrastructure development cess on CNG in a bid to collect revenue for gas pipeline projects. The price of CNG has also been brought to 55% of petrol.
According to a report, Ogra had recommended that POL product prices effective Feb 1, 2012, may be kept unchanged by absorbing the said increase in petroleum levy, to provide relief to public at large,” the authority had written to the government, arguing that receipts from petroleum products had already shown a rise of Rs9.2 billion over the July-December period last year.
The Ogra had pointed out that government receipts from petroleum levy and sales stood at Rs153.3 billion against Rs144.1 billion during the same period of last year. “In case POL prices are kept unchanged, the estimated loss in government revenue will amount to Rs3 billion only, which is within the additional tax revenue of Rs9.2 billion, being earned by the government,” the authority had argued. To its disappointment, the authority had to notify an increase in POL prices on the directives of the federal government.
A senior government official said Ogra’s recommendations were overruled for the simple reason that it was the government’s jurisdiction to formulate fiscal policies and fix tax rates. The raise in petroleum prices has sparked countrywide protests from the public, who are already bearing the brunt of gas and power load shedding and unemployment.
The increase in petroleum prices was necessitated by about 2.92 per cent rise in transportation cost, mainly because of movement of products from the country’s south to the north due to Parco’s expected shutdown for a month from March 15 and hike in pipeline tariff due to 1.04 per cent devaluation of the rupee against the US dollar.
The effect of massive hike in CNG and petroleum prices resulted in enormous jump in the Sensitive Price Indicator (SPI) based inflation for the week ending on April 5 compared to the previous week. Data released by the Pakistan Bureau of Statistics (PBS) said the SPI for the said week registered an increase for all five income groups among which the inflation monitors are calculated.
The inflationary spiral has been mainly triggered to the increase in fuel prices by the government from April 1, 2012 and it is reflected in the PBS facts, 28 items registered an increase in prices compared to 19 items the previous week. Experts say the surge in the SPI inflation is mainly due to increase food and fuel items. The SPI for the combined income group during the week ending on April 5, 2012 increased by 1.05 percent against the previous week, whereas compared to the week during corresponding period of last year the SPI increased by 9.87 percent.
The SPI is computed based on the prices of 53 essential items covering 17 urban centres. During the said week 28 items registered increase in prices led by tomatoes as its prices jumped by more than 67 percent in one week followed by potatoes as its rates improved by 13 percent during the week.
Other items are petrol, kerosene, diesel, lawn, bananas, cooked beef plate, long cloth, vegetable ghee loose, shirting cloth, washing soap, milk powdered Nido, cooked dal plate, sugar, mustard oil, rice basmati broken, gram pulse washed, milk fresh, curd, wheat flour, rice irri-6, beef, cooking oil tin pack, vegetable ghee tin pack, red chillies powder loose, moong pulse washed and mutton.
Standard & Poor’s highlighted the fact that the country’s balance of payments has started coming under pressure. While remittances rose 19.5% in the first half of the fiscal year ending June 30, 2012, they could not keep pace with the 32% increase in the trade deficit. Foreign direct investment during that period fell almost 37% to $532 million. As a result, the current account deficit hit $2.4 billion for the first half of fiscal 2012, compared to an $8 million surplus in the same period the previous year. Nonetheless, S&P feels that the government’s $17 billion in foreign currency reserves should be adequate to withstand external liquidity pressures but Pakistan could face problems if foreign aid continues to decline. The agency reckons Pakistan has $2.4 billion worth of debt repayments to make in 2012.
The agency maintained the stable outlook owing to the balance between the strong foreign currency reserves and the vulnerability stemming from the ongoing structural fiscal weaknesses and significant political and security risks.
“We could lower the rating if major slippages in policy occur, resulting in renewed balance of payments difficulties or a rising public debt trajectory,” said the agency in the report. Also according to reports, Inflation is higher in Pakistan than India, China and Sri Lanka. According to official documents, Sri Lanka is the country in the region where price hike is very low and inflation remained at 2.7 percent in February. China stands at second number where inflation remained at 4.5 percent.
High inflation in Pakistan is contributing to increasing vulnerability and fall in the real income of lower, middle and fixed income segments of the society. On the contrary, the government continues to give the excuse of international oil price hike to justify high power prices being charged domestically. It is a common knowledge that a large amount of our resources have fallen prey to massive corruption. All records of corruption have been broken during the tenure of this government. Profitable entities such as steel mills, Wapda, PIA and PSO have been completely destroyed.
Despite being in power for four years, the government has failed to find an economy expert who could devise a comprehensive strategy to revive economy. Policy-makers also need to revisit the war on terror policy and turn it into a monetary beneficiary policy for Pakistan. If the government is sincere with the people of this country, as it claims, then it needs to come up with a massive plan to eradicate corruption. This would stop the wastage of resources and provide some relief to the masses. The government also needs to control its massive expenditures and bring down the petroleum prices, revive the sluggish economy, overcome load shedding and provide new avenues for employment.