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May 19, 2019

Higher gas prices to increase pressure on household budgets


May 19, 2019

ISLAMABAD: Pakistan’s energy regulator has proposed big increases in government-set gas prices, a move that underlines the growing pressure on household budgets following a $6 billion loan agreement with the International Monetary Fund (IMF), Reuters reported on Saturday.

It will also increase the pressure on Prime Minister Imran Khan, whose government came to power last year determined to avoid turning to the IMF, as the

nation struggled to control ballooning deficits and a looming balance of payments crisis.

The IMF deal agreed last Sunday, which still must be approved by the Fund’s board in Washington, has already begun to bite, triggering a stock market slide and a fall in the rupee to a record low of 150 versus the dollar this week.

With inflation already running at more than eight percent and the central bank expected to hike interest rates on Monday, opposition parties on Friday announced plans for protest rallies after the Muslim holy month of Ramazan.

Pakistani households have already been struggling, with the rupee down by around a third since the start of last year and many of the social welfare reforms promised by the government yet to be implemented.

Energy prices, which are controlled by the government, have been under heavy pressure as the currency has slumped with consumers also facing repeated supply outages.

On Friday, the Oil and Gas Regulatory Authority (OGRA) said that it was recommending a 47 percent increase in prescribed prices for gas supplied by Sui Northern Gas Pipelines, one of the country’s two main suppliers of the cleaner-burning fuel.

It would also allow a 28 percent increase in prices from Sui Southern Gas Company Ltd, which like Sui Northern, is bleeding cash, partly due to subsidies offered to residential and industrial consumers and which are politically sensitive.

The proposals, which also include recommendations to rationalise tariff structures that benefit certain categories of consumers, will have to be approved by the government before the price hikes can take effect.

OGRA said its recommendations were short of what the companies had been asking for but reflected the fall in the value of the rupee, whose exchange rate is underpinned by the central bank under a de facto managed float system.

Conditions of the IMF agreement are not yet known in detail, but under the preliminary staff-level accord announced last Sunday, Pakistan would agree to a “comprehensive plan for cost-recovery in the energy sectors”, pointing to cuts to subsidies and a rise in power and gas prices.

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