Skyrocketing fuel prices in Pakistan threaten economic and political crisis | War between the United States and Israel against Iran News

DEVELOPING HISTORYHISTORY IN DEVELOPMENT,

A huge rise in Pakistan's fuel import bill, from $300 billion to $800 billion, is putting more pressure on the economy.

The most severe fuel price shock to hit Pakistan in more than half a century threatens to unleash an avalanche of cascading crises that could affect every aspect of the economy and undermine Prime Minister Shehbaz Sharif's government.

Earlier this week, Sharif said Pakistan's oil import bill had risen from $300 million before the conflict to $800 million now, which he said erased all the economic progress the country had made in the past two years. Analysts say the knock-on effects will become increasingly severe, impacting everything from agriculture and transportation 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 increases trigger a chain reaction throughout the economy,” economist Kamran Butt told Dawn newspaper. “They increase transportation costs, raise prices of everyday staples and foodstuffs, raise the overall cost of living, reduce purchasing power, increase poverty and unemployment, slow economic activity, and ultimately fuel public discontent as quality of life deteriorates.”

The State Bank of Pakistan raised its policy rate by a full percentage point to 11.5 percent.

The bank said: “The Committee noted that the protracted Middle East conflict has intensified risks to the macroeconomic outlook. In particular, global energy prices, freight rates and insurance premiums remain significantly above pre-conflict levels. In addition, supply chain disruptions have contributed to the prevailing uncertainty.”

Rising fuel costs have a global impact, but Pakistan is particularly vulnerable. It relies heavily on imported energy and higher costs worsen its already precarious balance of payments situation. Fuel prices directly influence inflation: diesel powers trucks, buses, tractors, generators and parts of the food supply chain, while gasoline affects consumer travel and transportation.

The country also relies heavily on remittances from overseas workers, mostly workers working in the Gulf states. War could devastate these incomes.

All of this is impacting an already fragile economy weakened by years of inflation, debt stress and slow growth.

There are no good options

The government is caught between two bad options, analysts say: pass on global oil prices to consumers and face public anger, or subsidize fuel and blow a hole in the budget. Pakistan is under strict IMF supervision, limiting the government's ability to spend its way out of the problem. The government has been widely criticized by analysts for failing in April negotiations when it sought IMF approval for higher fuel subsidies and was rejected.

“We are in a state of absolute dependence, where even a tranche of a billion dollars, which is a microscopic amount in global fiscal terms, can make the difference between survival and collapse,” said economist Kaiser Bengali, former planning and development advisor to the Sindh chief minister.

“The current government's penchant for 'austerity theatre' (selling official cars or symbolic goats and horses) is a joke that has been played out for 40 years,” he said. “It does not affect the oil market at all.”

The escalating economic situation is putting more pressure on Sharif's government. Pakistanis are angry and opposition parties are taking advantage.

“The government's flawed policies have imposed an economic war on the people,” said Aslam Ghauri of the JUI-F party. By focusing on the burden that rising fuel costs place on ordinary people, they hope to turn the economic emergency into a political crisis for Sharif.