Pakistan increased the price of fuel by 22.20 rupees ($0.0835) a liter to 272 rupees ($1.02) as of Thursday because of the falling value of the country's currency, according to Finance Minister Ishaq Dar.
Gas prices have also been hiked from 16% to 113% for different sectors including domestic consumers, according to a recent Pakistan Oil and Gas Regulatory Authority (OGRA) notification. The increase is said to help the government generate Rs310bn from consumers in the second half of the current fiscal year and slow down the build-up in gas sector debt. Another rise in gas prices is expected in July.
Both the petrol and gas price hikes were one of the IMF's preconditions for the resumption of its stalled bailout package. The preconditions also include new fiscal measures undertaken through the "mini-budget". The mini-budget is aimed at reducing the budget deficit and broadening the government’s tax collection net.
The Sharif government is contemplating increasing the goods and services tax (GST) in the country on all products to 18% from the present 17% in lieu of the new mini-budget.
Accumulated Factors
"When it comes to the condition of Pakistan it is very difficult to figure out where things are going. Right now we have too many speculations going everywhere, but if anyone were to look at the situation and where it is today, it is only an indication of all the things that have happened in the past," Khalid told Sputnik.
I would say that Pakistan has essentially gone through a stroke. That is the manifestation of all things that were going wrong previously. A lot of things have piled up, which include the way our foreign relations are being handled, the way the budget is being handled internally. It also includes the way the funding has been put through various projects and how the overall recovery of the tax collection has been.
According to the entrepreneur, the current situation is a very complex one and, for now, all that Pakistanis can do is to hope that the government can make a plan for the next ten or fifteen years.
“When there is a plan, then everyone will need to put their heads down and work to achieve that," Khalid added.
Talking about the predicted 33% inflation that is being estimated for 2023, the investor said there are still many variables.
"The current situation is very unpredictable because no one could have guessed the environmental catastrophe, destruction of crops and forced relocation of people at this magnitude. So whatever we are doing, or planning on doing, will never be enough without external support," he told Sputnik.
Mounting Loans Raise Economic Burden
Meanwhile, Shehbaz Sharif's government has faced criticism from all sides for how it has handled the economic crisis.
One local report read: "There is not even a hint that those currently in power are even contemplating dismantling the network of subsidies and privileges that exists solely to benefit the country’s elite to the tune of billions of dollars every year."
For his part, former Prime Minister Imran Khan has compared the country's deal with the International Monetary Fund (IMF) to "treating cancer with aspirin".
According to the Pakistan Tehreek-e-Insaf Party chief, the IMF bail-out package is unlikely to solve Pakistan's financial problems in the long run, offering only short-term relief as mounting loans would raise the economic burden on the treasury.
Addressing Pakistanis on live TV, the former premier said that the country's economy is moving towards the worst possible scenario, given the country's sovereign default rating.
"Global rating agency Fitch has downgraded Pakistan's foreign default rating to 'CCC-', which means we have reached the level of Sri Lanka," Khan stated.
For most people in Pakistan, salaried or self-employed incomes have not kept pace with inflation and liquid savings have lost value. But analysts predict that the worst is yet to come and might continue for several years as the standard of living for an average Pakistani is dwindling.
Sri Lanka Effect
If Pakistan is headed in the direction of Sri Lanka, it means that millions of people will suffer months of food and fuel shortages, including long power cuts, delayed visits to hospitals, pulling children out of private schools, delaying marriages and many other regular things.
Just yesterday, debt-ridden Sri Lanka announced that it has hiked the electricity price by up to 275%. This is the second monthly hike, as the bankrupt island nation seeks a $2.9 billion bailout package from the International Monetary Fund (IMF).
"We had to raise electricity charges to be in line with IMF conditions that we cannot get handouts from the treasury," Sri Lankan Energy Minister Kanchana Wijesekera said.
The minister expressed hope that the government might reduce the price sometime around July.
In Pakistan, there is a big role for the government in terms of offering effective safety nets and providing civilians with quality healthcare, education and other public goods. As real incomes have fallen dramatically over the last few years millions will not be able to maintain the lives they did some years back.