ISLAMABAD: The government on Monday defended its recent decision to increase petroleum prices by up to 6.45 per cent, saying the Oil and Gas Regulatory Authority (Ogra) had proposed double the price increase, but that was not fully passed on to consumers.
Finance Minister Asad Umar spoke to journalists at a function organised by the State Bank of Pakistan (SBP) and said he was ready to debate with the opposition on the issue of oil prices in the past and the present. He argued that the difficulties of citizens and the economy would continue for at least two years before the government’s economic reforms took root.
Quoting former speaker of the National Assembly Ayaz Sadiq, a journalist reminded the minister that he had been advocating for Rs40-50 per litre price for petrol when in opposition, but the rates now are double when the PTI is in the power. Mr Umar challenged the former speaker to come on camera for a debate and said that he would elaborate on how the PML-N government had been playing with oil prices.
The minister maintained that he had been absolutely correct in demanding those prices then because the international oil price had been in the range of $30-32 per barrel — and that it has now more than doubled. He said the government had passed on just half of the increase in prices proposed by the regulator.
Puts blame on international oil rates, previous governments’ policies
Mr Umar explained that it was also important to compare the tax rates in the past and present, claiming that the previous government used to charge very high taxes on petroleum products, while these were 10-12pc at present and that too was increased only recently. The present government had been charging minimum tax rates on petroleum products until two/three months ago. Secondly, he went on, the currency also witnessed devaluation, a process that he said started when Shahid Khaqan Abbasi was the prime minister. He reminded the forum that the exchange rate had witnessed a sudden decline of Rs22 to a dollar and that everybody used to suggest that the rupee was overvalued, which had now reached its real value.
Responding to a question, the finance minister conceded that there was no doubt that inflation had increased, but this was due to balance-of-payment problems, as in 2008 and 2013. The increase in inflation in 2018 was nothing as compared to the first year of previous governments in 2008 and 2013, he maintained.
Responding to a question about revenue shortfall despite oil price hike, higher inflation, depreciation and an increase in discount rates, the minister attributed the revenue shortfall to import compression, a series of court decisions and lower taxes on petroleum products. He said that revenue generation problems could not be fixed in three months’ time and required reforms were being undertaken to bring about fundamental changes in the tax policies for a sustainable increase in tax collection.
Mr Umar said the government had received $2 billion from the UAE, $3bn from Saudi Arabia and $2.1bn from China, with the SBP now believing that the exchange rate had achieved its equilibrium. Responding to another question, the finance minister said that former prime minister Shahid Khaqan Abbasi and former finance minister Miftah Ismail were on the record saying that the rupee was overvalued and depreciated from Rs105 to Rs127 during the tenure of the PML-N government and that of caretakers, while there was a depreciation of Rs12-14 during the tenure of the present government.
The minister claimed that discussions with the International Monetary Fund for a bailout package had reached the landing zone as there was a disagreement between the Fund and the government on the timing to implement agreed-upon reforms and their sequencing.
Read more:IMF bailout package likely by mid-May, says finance minister
Separately, Minister for Petroleum and Natural Resources Ghulam Sarwar Khan also justified the increase in prices of petroleum products. He said Ogra had suggested Rs11.91 per litre increase in petrol price, which was slashed to 50pc and only Rs6 per litre was passed on to the consumers.
Likewise, he said, Ogra had recommended Rs11.17 per litre increase in the rate of high speed diesel, but the government made an increase of only Rs6 per litre and absorbed the remaining part in taxes. He maintained that petroleum prices in Pakistan remained lower as compared to other South Asian countries.