Pakistan hikes fuel prices

Reuters News
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Posted: Apr 01, 2011 5:51 AM
Pakistan hikes fuel prices

By Zeeshan Haider

ISLAMABAD (Reuters) - Pakistan raised fuel prices by up to 13 percent Friday, reflecting the rise in global crude prices, but political parties were quick to reject the move that could stir fresh anger due to fears over sharply rising costs of living.

The fragile coalition led by President Asif Ali Zardari halved the increase in petroleum prices last month to mollify a key partner which quit the government in protest over the last fuel price hike in January.

That increase was reversed altogether to lure back the Muttahida Qaumi Movement, the third-biggest party in the coalition, but the reluctance to remove subsidies goes against the IMF's concerns over the country's fragile economy.

The party again denounced the latest increase as "sheer injustice" and urged the government to revoke the raise.

"The people of Pakistan are already under the burden of high prices and the government's decision to once again increase fuel prices will put further pressure on the people," the party said in a statement.

The main opposition party led by former Prime Minister Nawaz Sharif also rejected the increase.

"The government should curb corruption and cut its own expenditures to raise revenues instead of creating problems for the poor people," party spokesman Siddiqul Farooq told Reuters.

The opposition lawmakers walked out of the parliament in protest over the rise in petroleum prices, prompting Prime Minister Yusuf Raza Gilani to offer talks.

"I have directed the finance minister to sit down with the political parties and discuss with them, how to give relief to the masses over petroleum prices," he told the National Assembly.

The latest increase effective from Friday saw the price of gasoline raised to 83.56 rupees ($0.98) a liter from 76.58 rupees, up 9.1 percent, and light speed diesel to 78.98 a liter from 69.91 rupees, up 12.97 percent, the OGRA said in a statement.

International benchmark Brent crude for May was at $117.40 a barrel Friday, after hitting the highest close the previous day since August 2008 and up 23.9 percent for the first quarter.

Pakistan, where tens of millions of people live in poverty, is struggling to control inflation.

IMF PRESSES FOR REFORMS

The Consumer Price Index (CPI), a key reflection of inflation, rose 12.91 percent in February from the same time last year, and the rise in petrol prices is likely to worsen inflation further.

The previous reversal of price increase saved Zardari's government from instability, but the International Monetary Fund has been pressing Islamabad to take immediate measures, such as tax reforms and withdrawal of subsidies, to stem economic meltdown.

Gilani said taxes on petroleum products in Pakistan, which linked its domestic fuel prices to global oil prices in 2008, were among the lowest in the world and the government was giving 35 billion rupees of subsidy on fuel.

Implementing financial reforms is a condition for the IMF to disburse the sixth tranche of an $11 billion loan.

In December, the IMF approved a nine-month extension of the loan which was due to end December 31, 2010, to give authorities time to complete the implementation of fiscal reforms. The extension runs to September 30, 2011.

Pakistan, which imports about 80 percent of its oil, spent $3.99 billion on the import of 6.9 million tones of petroleum products and $2.45 billion on 4.3 million tones of crude oil in the first seven months of the 2010/11 (July-June) financial year.

(Additional reporting by Faisal Aziz; Editing by Augustine Anthony and Ramthan Hussain)