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Soaring fuel prices in Pakistan threaten economic and political crises
TL;DR
Pakistan faces its most severe fuel price shock in over 50 years, threatening economic stability and the government of Prime Minister Shehbaz Sharif. The oil import bill has surged from $300 million to $800 million, exacerbating the cost-of-living crisis and impacting essential goods.
Key points
- Pakistan faces a severe fuel price shock.
- Oil import bill increased from $300 million to $800 million.
- Economic impacts include rising costs of living and food prices.
- State Bank of Pakistan raised key policy rate to 11.5 percent.
Mentioned in this story
State Bank of PakistanShehbaz Sharif
The most serious fuel price shock to hit Pakistan in more than half a century threatens to unleash a flood of cascading crises that could batter all aspects of the economy and undermine the government of Prime Minister Shehbaz Sharif.
Earlier this week, Sharif said Pakistan’s oil import bill had surged from $300 million before the conflict to $800 million now, which he said erased all the economic progress the country had made over the past two years. Analysts say the knock-on effects will be increasingly severe, impacting everything from agriculture and transport to the price of food and basic goods, worsening the plight of families already facing a cost-of-living crisis.
“Conventional economics tells us that oil price hikes trigger a chain reaction across the economy,” economist Kamran Butt told the Dawn newspaper. “They increase transportation costs, push up the prices of daily-use commodities and food items, raise the overall cost of living, reduce purchasing power, increase poverty and unemployment, slow economic activity and eventually fuel public discontent as quality of life deteriorates.”
The State Bank of Pakistan raised its key policy rate by a full percentage point to 11.5 percent.
The bank said: “The Committee noted that prolonging the Middle East conflict has intensified risks to the macroeconomic outlook. In particular, the global energy prices, freight charges and insurance premiums continue to remain significantly above pre-conflict levels. Furthermore, the supply chain disruptions have contributed to the prevailing uncertainty.”
Soaring fuel costs have a global impact, but Pakistan is particularly vulnerable. It is heavily dependent on imported energy, and higher costs worsen its already precarious balance-of-payments position. Fuel prices feed directly into inflation – diesel powers trucks, buses, tractors, generators and parts of the food supply chain, while petrol affects commuting and consumer transport.
The country is also highly reliant on remittances from workers overseas, mostly labourers working in Gulf states. The war could devastate this income.
All this is impacting an already fragile economy weakened by years of inflation, debt stress and sluggish growth.
Q&A
What caused the recent fuel price surge in Pakistan?
The fuel price surge in Pakistan is primarily due to the ongoing conflict in the Middle East, which has significantly increased oil import costs.
How much has Pakistan's oil import bill increased?
Pakistan's oil import bill has risen from $300 million to $800 million, marking a dramatic increase that affects the economy.
What are the economic consequences of rising fuel prices in Pakistan?
Rising fuel prices are expected to increase transportation costs, elevate food prices, reduce purchasing power, and worsen poverty and unemployment.
How is the State Bank of Pakistan responding to the fuel price crisis?
The State Bank of Pakistan raised its key policy rate by one percentage point to 11.5 percent in response to the economic risks posed by rising fuel prices.
