Pakistan announces record rise in fuel prices, economy contracts

Pakistan has announced a record increase in fuel prices days before the end of a fiscal year in which the country’s economy contracted for the first time in 68 years as a result of the coronavirus pandemic.

The hike, which ranges from 27 per cent to 66 per cent depending on the petroleum product, was announced on Friday night. It drew nationwide condemnation from people on social media on Saturday.

The move comes two weeks after Islamabad said its GDP in the outgoing fiscal year ending on June 30 will shrink by 0.4 per cent, instead of an initially projected 2.4 per cent growth.

Pakistan’s economy has witnessed a steady decline since 2018, when Prime Minister Imran Khan’s government came into power.

Its economy has been affected by the coronavirus since March, when Khan put the country under lockdown. Restrictions were eased in May, causing a spike in coronavirus infections and deaths.

Pakistan has confirmed 198,883 virus cases, including 4,035 deaths.

The Rs7.13 trillion tax-free deficit federal budget was presented in the National Assembly on June 12, 2020, with its major portions allocated for debt servicing and defence.

Federal Industries Minister Hammad Azhar read out the budget amid continued slogan chanting by the opposition members, who displayed a large number of placards to register their protest. They reminded Prime Minister Imran Khan, who was in attendance, about his promises. They later boycotted the proceedings.

No increase in the government employees’ salaries and pensions of retired civil servants was announced for the first time after many years.

The government servants had been protesting for the past few weeks demanding raise.

“The entire world is suffering from the virus, even the most developed countries in the world,” said Azhar. “Pakistan continues to suffer from not just the virus but also from an economic point of view. But we haven’t given up and will continue to take actions to lift up our economy hurt by coronavirus lockdowns.”

For the first time, Pakistan’s economy contracted in the outgoing fiscal year due to adverse impact of the novel coronavirus coupled with economic stabilisation policies that had hit the industrial sector much before the deadly pandemic.

“After assuming charge in August 2018, the government kicked off efforts to improve the economy. Our aim was to eliminate corruption, improve institutions and strengthen the economy,” the minister said. He said that the State Bank of Pakistan’s foreign exchange reserves had slipped from $18 billion to less than $10 billion.

“We were near bankruptcy, when the PTI came to power. No efforts were taken to curtail money laundering, which is why Pakistan was placed on grey list. We took key decisions to stabilise the economy and we saw improvement in key indicators,” he added. Azhar said the current account deficit was brought down; trade deficit contracted 21 per cent.

The current account deficit narrowed down from $19 billion two years ago to $3.3 billion this year. Due to the debts taken by the past government, we had to make interest payments worth Rs5,000 billion in the outgoing fiscal year. He said that Pakistan was among the top performing global markets in 2019 as the government also initiated reforms for Ease of Doing Business. In a major relief to the public, the government announced that it would not impose any new taxes. Azhar said the budget was prepared in light of the impact of the COVID-19 pandemic.

“No new taxes have been levied and expansionary policies are needed. Lockdown, social distancing and precautionary measures have adversely affected the economy. Like economies around the world, Pakistan’s economy also took a hit due to the coronavirus.” The minister said the development budget has been kept at a reasonable level to provide employment opportunities and support economic growth. The government expects 17% increase in revenues in FY21 while the total revenue collection target is Rs6.57 trillion - including Rs4.96 trillion of the Federal Board of Revenue. The non-tax revenue target is set at Rs1.61 trillion.

Prime Minister Imran Khan has chaired meeting of National Economic Council (NEC) in Islamabad and deliberated on economic affairs of the country last week. According to details, the participants have suggested to cut federal and provincial development budgets by 18 per cent. They have also talked on setting Rs11,413 billion for development projects from the overall budget. According to sources, the budget deficit is likely to be more than Rs3,427 billion while Rs3,235 billion will be spent on interest and repayment of loans.

Agencies