KARACHI (Web Desk) - Pakistan’s economy is bound to bear the brunt of a recent hike in fuel prices by more than 20 percent, economists and industry leaders warned this week, fearing the move is expected to slow economic growth, increase inflation and hurt already declining exports.
The government on Friday increased petrol and diesel prices by Rs55 ($0.20) per liter each as the ongoing conflict in the Middle East, involving Iran, Israel and the US, sent global oil prices sharply higher and disrupted energy supply routes.
The price of petrol was revised up by 21 percent to Rs321.17 per liter while diesel was increased by 20 percent to Rs335.86 per liter. International oil prices have surged by 37 percent to around $106.8 per barrel from $78 on Mar. 1, while diesel prices have increased to about $150 per barrel since the conflict began on Feb. 28.
“The economy was picking up sluggishly, so I think that pace will slow down a bit,” Muhammad Saad Ali, head of research at Lucky Investments Ltd., told Arab News.
“Next year, it is expected that there will be more than 4 percent GDP growth, so potentially that might not happen,” he added.
Pakistan’s central bank said in February that the country’s growth outlook for the current fiscal year has improved to 3.75-4.75 percent due to improved economic activity. The growth will further improve in FY27, the State Bank of Pakistan (SBP) said in its bi-annual Monetary Policy Report.
Ali said the surge in fuel prices would also weigh on consumer price inflation, which rose to 7 percent last month to mark a 16-month high.
“It’s obvious that inflation will increase by 0.7 percent to 1 percent in the future,” Ali said.
He said it was expected that inflation would increase to 8-9 percent by May or June due to the base effect.
“Potentially, it will increase by 0.5 percent to 1 percent,” he said, adding that inflation projections would jump “a lot” in the months ahead.
“The State Bank talks about it a lot. People will cut back on their expenses,” he warned.
Pakistan’s finance adviser Khurram Schehzad and finance ministry spokesperson Qamar Sarwar Abbasi did not respond to Arab News’ questions on the issue.