ISLAMABAD: The continuous depreciation of the rupee against the US dollar is poised to initiate a fresh wave of inflation in Pakistan, with expectations of a surge of over Rs13 per liter in petroleum product prices in the next fortnightly review, scheduled for August 31.
The exchange rate of the US dollar has risen by Rs12.08 from August 16, 2023, to August 24.
This implies that starting from September 1, the prices of petrol and diesel will escalate solely due to the exchange rate fluctuation. Nonetheless, on the global market, the costs of petroleum oil lubricant (POL) products and crude have stayed relatively steady. Despite only six days remaining in the ongoing fortnight, the possibility of a further increase in the dollar value remains plausible.
Over the last two fortnights, the price of petrol has already surged by Rs37.50 per liter and diesel by Rs40 per liter. However, given the present circumstances, the dollar’s value in the interbank market has crossed the Rs300 mark, with an open market value of Rs315.
Procuring crude and POL products at elevated US dollar values is projected to result in additional price hikes for petrol and diesel in the first fortnight of September, potentially reaching double-digit increases, according to industry sources.
If we base prices on the August 24 dollar value, the petrol price is poised to increase by Rs 9.95 per liter, and diesel will experience a surge of Rs 13.73 per liter. However, if the dollar’s uncontrolled appreciation persists and is allowed to float freely in the upcoming seven days, the surge in POL product prices could reach double-digit percentages
Moreover, the charges for letters of credit (LCs) confirmation have also surged by 10%, from 0.5-1% recorded two to three years ago.
rise of the US dollar interlinked with a surge in petrol prices
In the midst of this situation, Finance Minister Shamshad Akhtar and the central bank appear unaffected and have yet to take any action to control the relentless rise of the US dollar in light of the International Monetary Fund’s $3 billion loan conditions.
Anticipating the appreciation of the dollar, experts foresee that electricity tariffs will also rise further due to monthly fuel adjustment charges and quarterly tariff adjustments.
In the meantime, the National Electric Power Regulatory Authority (NEPRA), with input from the Ministry of Finance and Power Division, has already raised the base tariff by Rs3 to Rs7.50 per unit for various consumer categories.
The base tariff for FY24 was determined at a dollar value of Rs287, considering inflation at 17%. However, current realities show the dollar’s interbank value has reached Rs300.33, coupled with inflation at 28%.
Monthly tariff Hike
Meanwhile, the contentious base tariff computed at a lower dollar value will lead to monthly tariff hikes under the Fuel Cost Adjustment (FCA) and quarterly tariff adjustments. This trajectory is set to exacerbate the difficulties faced by the citizens.
The government has already signaled its intention to increase the tariff by Rs2.07 per unit due to the FCA adjustment in July 2023.
Consumers are subject to the law that passes on fluctuations in fuel prices. NEPRA is scheduled to announce its decision regarding the tariff impact for the fourth quarter of FY23. The government has requested a tariff increase of Rs5.40 per unit for the last Quarterly Tariff Adjustment (QTA) of FY23 and aims to recuperate the impact over three months.
To mitigate the price shock for the public, the government had aimed to distribute the FY23 last-quarter adjustments’ impact over six months during the winter season, from October 2023 to March 31, 2024. This strategy would have reduced the impact to Rs2.31 per unit, as the impact of the third quarterly adjustment FY23 of Rs1.24 would conclude in September 2023.
Nonetheless, in light of the unchecked rise of the dollar, Pakistani consumers might experience more tariff increases on a monthly basis during the current fiscal year 2023-24 under the FCA, in addition to quarterly tariff adjustments occurring four times.
