Facing default, Pakistan announces Rs 35 hike in petrol and diesel prices

Hit by the worst economic crisis, Pakistan hiked petrol and diesel prices by Rs 35 from Sunday. Pakistan is in serious trouble due to decades-high inflation, lower growth, and depleting forex reserves. It desperately needs funds from the International Monetary Fund (IMF) to avoid default. However, the international financial agency has demanded some reforms which also include an increase in petroleum prices.

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Today, Pakistan Finance Minister Ishaq Dar announced Rs 35 increase in the prices of petrol and diesel. "The Pakistani rupee saw devaluation last week […] and now we are seeing an 11 per cent increase in the prices of petroleum products in the international market," he was quoted as saying by the Pakistan-based daily Dawn.

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Pakistan needs to complete the ninth review of a $7 billion IMF programme that would lead to a disbursement of $1.2 billion and also unlock inflows from friendly countries and other multilateral lenders. The IMF conditions include a market-based dollar-rupee exchange parity, a high-interest rate, and the imposition of a 17 per cent general sales tax on diesel and petrol within a week.

Pakistan's foreign exchange reserves hit a new nine-year low of $3.678 billion during the week ended on January 20.

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The Sharif government is planning to cut the salaries of government employees, reduce the count of federal ministers and curb the expenditure of ministries.

Pakistan Prime Minister Shehbaz Sharif recently formed a National Austerity Committee (NAC) to suggest ways to cut costs. The committee has proposed 10 per cent salary cut for government employees and 15 per cent reduction in expenditures of ministries and divisions. 

The committee said the number of federal ministers, ministers of state, and advisers should be reduced from 78 to 30, and the remaining should work on a pro bono basis, as per a report by UAE-based news site Geo News. 

On Friday, Pakistan's currency depreciated to its lowest against the US dollar and closed at 262.6. At one stage the currency depreciated to 265 rupees in the open market and 266 rupees in the interbank before making a slight recovery by the end of the day. When the market opened on Friday the currency fell by 7.17 rupees or 2.73 per cent from Thursday's close.

(With inputs from PTI)