Caretaker Government of Pakistan Faces Backlash as Energy Prices Soar Amid IMF Loan Conditions
Islamabad, Pakistan – August 31, 2023
In a move that has ignited public outrage and triggered widespread protests across Pakistan, the caretaker government under Prime Minister Anwaarul Haq Kakar has refused to reduce energy prices without obtaining approval from the International Monetary Fund (IMF). As a result, petrol and diesel prices have been hiked by over 14 Pakistani Rupees (PKR), surpassing the psychologically significant PKR 300-mark.
The latest price increases, effective immediately, have seen the cost of petrol rise by PKR 14.91 per litre and high-speed diesel (HSD) surge by PKR 18.44 per litre. Furthermore, the government has raised the petroleum levy on petrol by an additional PKR 5 per litre, reaching the maximum permissible limit of PKR 60 per litre. In addition to this levy, customs duty ranging from PKR 18 to 22 per litre is being charged on petrol and HSD.
The new prices have pushed petrol to a staggering PKR 305.36 per litre and HSD to PKR 311.84 per litre. These increases come just two weeks after a prior hike of PKR 17.50 and PKR 20 per litre for petrol and HSD, resulting in a cumulative rise of PKR 31.41 and PKR 38.44 per litre within a mere 15-day span.
The impact of the HSD price hike is particularly severe, as this fuel is predominantly used in heavy transport vehicles, trains, and various agricultural engines such as trucks, buses, tractors, tube wells, and threshers. Consequently, it contributes significantly to the escalating prices of essential goods, including vegetables and other consumables.
Electricity bills in Pakistan have also witnessed a sharp increase, prompting hopes that the caretaker government would alleviate the financial burden on the public. However, the Cabinet’s refusal to reduce prices is attributed to concerns that such a move would jeopardize a substantial IMF loan. The IMF had imposed stringent conditions on Pakistan to eliminate energy subsidies and achieve revenue targets as part of a $3 billion bailout granted in July, aimed at revitalizing the nation’s faltering economy.
The government’s inaction in the face of soaring inflation has led to widespread public rallies and protests throughout the country, including the capital, Islamabad. Although the IMF bailout was intended to help Pakistan avert a debt default, the nation is grappling with the challenging task of implementing all the conditions set by the international lender.
With inflation reaching unprecedented levels and foreign exchange reserves barely sufficient to cover one month of controlled imports, Pakistan is confronting its most severe economic crisis in decades. Analysts have warned that, in the absence of the IMF deal, this crisis could have escalated into a full-blown debt default.
One of the IMF’s conditions, the removal of import restrictions, has resulted in the Pakistani currency’s depreciation against the US dollar. The Pakistani Rupee (PKR) now stands at an all-time low, with its value surpassing Rs 305 in the interbank market and exceeding Rs 350 in the open market. Under the caretaker government’s tenure, the PKR has depreciated by 15 points since assuming office on August 12.
The economic turmoil has also taken its toll on the Pakistani stock market. On August 31, the market witnessed its second-largest overnight decline in the benchmark index, plummeting by approximately 1,250 points (2.7%). Experts attribute this decline to concerns about the country’s ailing economy, rumors of an impending interest rate hike, and the persistent depreciation of the PKR.
As the government grapples with escalating protests and public anger over increased taxes and price hikes, it finds itself constrained by the IMF program. Consequently, the government has opted to engage with the IMF to address the growing unrest and protests across the nation. Their aim is to seek a solution while obtaining approval to devise a strategy that provides relief to the masses without deviating from the IMF’s stringent requirements.
The situation remains tense as Pakistan’s caretaker government navigates the delicate balance between satisfying the demands of the international lender and quelling the mounting discontent among its citizens, who are grappling with the harsh economic realities brought on by these price hikes and fiscal adjustments.