The State Bank of Pakistan (SBP) has highlighted in its half-yearly report for July to December 2023-24 that Pakistan increased domestic petroleum prices despite a global downturn in oil markets.
Despite a decrease in global oil prices, the petroleum prices in Pakistan saw a double-digit increase during the first half of the current fiscal year, according to the SBP. The central bank attributed this rise to three main factors outlined for surge in petroleum prices in its report.
Firstly, the government hiked the Petroleum Development Levy (PDL) from Rs 50/litre in June 2023 to Rs 55/litre in July-August 2023, and further to Rs 60/litre in September-December 2023. This increase in levy contributed significantly to the escalation in fuel prices.
Secondly, starting from September 2023, the government permitted an increase in the profit margins of dealers and oil marketing companies (OMCs). This move further compounded the upward pressure on fuel prices.
Lastly, the depreciation of the Pakistani Rupee (PKR) compared to the first half of the fiscal year 2023 (H1-FY23) partially offset the impact of decreasing global oil prices. This resulted in an increase in the base price of fuels.
Despite the global downturn, the import unit prices of petroleum crude and products in rupee terms witnessed a significant rise, with a 12.7% increase for crude and a 17.4% increase for petroleum products during the first half of the fiscal year 2023-24.
The SBP’s report sheds light on the complexities of fuel pricing mechanisms in Pakistan, where domestic policies and currency fluctuations can have significant impacts on consumer prices despite global trends suggesting otherwise.
The decision to increase petroleum prices amid a global decline underscores the challenges faced by policymakers in balancing fiscal objectives, consumer affordability, and economic stability. Rising fuel prices often have cascading effects on various sectors of the economy, including transportation, manufacturing, and consumer goods, potentially leading to inflationary pressures.
As Pakistan navigates through economic challenges, including energy pricing dynamics, stakeholders will closely monitor government policies and central bank interventions to ensure sustainable economic growth and stability in the country.