According to the State Bank of Pakistan’s latest report on the ‘State of the Economy’, Pakistan ranks 32 out of 170 countries (1 being the lowest) in terms of gasoline prices. This makes Pakistan among the countries with the lowest fuel prices in the region.
The report also states that ‘lately, the government has started passing on some of the impact (of low fuel prices),’ with an eye on the next general elections that are due in 2018.
Crude oil prices have fallen over the last few years which in turn has helped countries like Pakistan that rely on fuel imports for most of their energy needs.
From February 2016 to March 2017, the international price of crude oil has increased by 64% while prices in Pakistan increased marginally, around 2.3%.
The State Bank’s report adds that in India the prices increased by 22.7% during the same time period (February 2016 to March 2017). Countries which import crude oil increased their prices in the range of 9.4% to 40.1%.
Better Quality Fuel Introduced
Pakistan’s dependence on imported fuel has increased recently following the introduction of higher quality RON 92 petroleum which replaced RON 87 in November 2016.
Low sulphur Diesel oil was also introduced in January 2016 with 500 ppm sulphur content compared to 5000 ppm used earlier. Local refineries lacked the equipment to produce the higher quality fuel locally.
Prices to Increase Soon
Experts predict that given the added burden on the national exchequer, an increase in fuel prices in the future can’t be ruled out.
While the motor fuel index carries a relatively small weight of 3.03% in the country’s CPI basket [inflation index], its actual impact on inflation is larger due to second-round impacts [like the cost of goods transportation]. – SBP
Lower fuel prices has helped keep the inflation rate at 4.18% during the first 11 months of FY 2016-2017. This is about to change soon as the report indicates:
In the bigger picture, it appears that the impact of quality upgrades on domestic prices is yet to materialize. However, going forward, recent regulatory changes in the motor fuel industry may lead to important adjustments in retail prices.