By Amir Saeed
ISLAMABAD– The government’s revenue policies and currency depreciation keep the fuel prices elevated, preventing the benefits of lower global oil prices from reaching the consumers and exacerbating the economic challenges.
Talking to WealthPK, Uzma Aftab, macroeconomic analyst at the Policy Research and Advisory Council (PRAC), highlighted that the fuel prices in Pakistan defied the global trend, rising sharply despite a decline in the international oil prices.
Heavy Reliance on Imported Petroleum Hurts Economy
“As a country heavily reliant on imported petroleum products, Pakistan’s economy is highly sensitive to global oil price fluctuations. The petroleum imports account for about 31% of the total import bill and consume around 55% of export earnings, making the oil prices a critical factor for the country’s foreign exchange reserves and inflation,’’ she added.
Sharp Domestic Fuel Price Surge Despite Falling Global Rates
“Typically, the lower global oil prices ease pressure on the country’s current account, stabilize the exchange rate, and help contain imported inflation. However, between 2022 and 2023, the domestic fuel prices surged from Rs179.9 per liter to a peak of Rs331 per litre, before falling to Rs258.2 per litre by mid-2024,’’ she said.
Petroleum Development Levy and Currency Depreciation to Blame
Uzma pointed out that this increase was mainly driven by a steep rise in the petroleum development levy, which jumped from Rs7.5 per litre in mid-2022 to Rs50 per litre in mid-2023, as the government sought to meet the revenue targets. Additionally, the depreciation of the Pakistani rupee offset the benefits of lower global oil prices, keeping the domestic fuel prices elevated.
“Despite the falling global fuel prices and record-low inflation, many Pakistanis continue to struggle due to the stagnant real wages and high poverty rates, with about 40.5% of the population living below the poverty line. High unemployment and low incomes limit the positive effects of inflation reduction, leaving many households vulnerable,” she said.
Cheaper Oil Could Free Up Fiscal Space
“Reducing the energy costs through cheaper oil could provide a fiscal space by lowering government subsidies on fuel and electricity. These savings could then be redirected toward social spending or deficit reduction, which is essential for improving the living standards. Without addressing these domestic factors, the benefits of lower global oil prices will remain limited for the people,’’ she suggested.
Reliance on Fuel Levies a Risky Fiscal Strategy
Talking to WealthPK, Aatizaz Hussain, a development economic researcher at the National Defence University (NDU) Islamabad, said the government’s heavy reliance on petroleum levies as a revenue source is a short-term fix that risks long-term economic stability.
He pointed out that the rising fuel prices can stifle economic growth by increasing the transportation and production costs, which ripple through the entire economy, leading to higher inflation and reduced competitiveness of the country’s goods in the international markets.
Structural Reforms Needed for Sustainable Relief
He highlighted that despite record-low inflation and declining global oil prices, many Pakistanis continue to face economic hardship due to the stagnant real wages and high unemployment. The government’s reliance on fuel levies for revenue generation, while fiscally understandable, has significant social costs.
Hussain advocated structural reforms, including broadening the tax base and improving tax collection efficiency, to reduce dependency on fuel levies. He believed such reforms would allow the government to lower the fuel prices, easing burden on the consumers and stimulating economic activity.
