Latest news with #Rs8.36
Business Recorder
2 days ago
- Business
- Business Recorder
To cut or not to cut
Recently, our business community has strongly advocated for lowering interest rates. While cheap credit is tempting for businesses, mistimed rate cuts can quickly turn problematic for the SBP. This brings us back to a question central bankers have long grappled with: to cut or not to cut? Expectations for a significant rate cut have risen. Pakistan's policy rate currently stands at 11 percent, down from a peak of 22 percent in June 2024. The State Bank has already delivered 1,100 basis points of cuts in just over a year. Now, businesses are pressing for rates to drop to 5-6 percent, representing another 500 to 600 basis points reduction, bringing borrowing costs even lower than the 7 percent emergency levels during Covid-19. This demand would be appealing if inflation hadn't surged following the recent petroleum price hike. Just as business leaders intensified their push for ultra-low rates, Pakistan's dependence on imported energy provided a sharp reality check. The government increased petrol prices by Rs8.36 per liter and diesel by Rs10.39 per liter from July 1st, lifting fuel costs to Rs272.98 and Rs266.79 per liter, respectively. This timing is especially troubling, as Pakistan's Sensitive Price Index jumped by 4.07 percent. Gas charges surged 29.85 percent, electricity by 21.46 percent, and even tomatoes increased by 22.93 percent due to higher transportation costs. Of 51 tracked items, 14 increased, while only 12 decreased. Drastic rate cuts could quickly overheat the economy, yet the business community's requests aren't entirely unjustified. Pakistan's exports rely heavily on textiles; while Vietnam maintains rates at 6.3 percent, Indonesia at 6 percent, and India at 5.5 percent, Pakistan's 11 percent rate seems excessively harsh. For textile exporters operating on slim margins, a 5 percent difference significantly affects pricing competitiveness. The potential upside of sharp rate cuts appears immediately attractive. Auto financing has already demonstrated this; cutting rates from 22 percent to 11 percent sparked seven consecutive months of loan growth, with outstanding auto loans recently reaching Rs276.6 billion. Car sales surged 43 percent. If rates dropped another 5 or 6 percent, SBP's Rs3 million loan cap (which the industry wants to be raised to Rs6 million) would become irrelevant as credit accessibility expands dramatically. Under favourable conditions, the government could benefit significantly. Following the recent budget, the government is strategically placed to benefit from any credit-driven boom. The 2025-26 budget abolished the 7 percent Federal Excise Duty on property transfers entirely and substantially reduced Islamabad's stamp duty from 4 percent to 1 percent. Lower taxes combined with cheaper credit could significantly boost transaction volumes, offsetting the tax cuts. In Punjab, KPK, and Balochistan, a rate cut would energize property transactions, each generating stamp duty revenue. Vehicle registrations would increase sharply, driving up fees and annual taxes. New digital transaction taxes would automatically capture growing e-commerce through payment gateways. Import volumes such as mobile phones, electronics, auto parts, and machinery would climb significantly, boosting customs revenues. Revived consumer spending would enhance sales tax collections. Business expansions would push more employees above taxable thresholds. The fiscal potential appears substantial when current revenues are multiplied by anticipated growth. However, numbers alone don't reveal the full picture. Under the IMF programme, Pakistan can no longer subsidize energy prices. With energy-driven inflation rising, and it certainly would if rates fell to 5-6 percent, the government wouldn't have room to cushion the blow. Monetary policy then becomes our primary shield against inflation. Imagine businesses competing for workers, materials, and commercial space with cheap 5 percent loans. Households with easy borrowing power would chase cars, appliances, and homes. Our hard-earned USD 1.2 billion current account surplus would vanish as imports escalate. The rupee would weaken under mounting import pressure, pushing inflation higher. Pakistan has experienced this scenario before; brief periods of excitement followed by external crises demanding emergency rate hikes beyond 20 percent. Ironically, the businesses advocating for 5 percent rates today would suffer most when the inevitable adjustment arrives. The dilemma faced by SMEs adds complexity. SMEs constitute 90 percent of businesses and provide 30 percent of jobs, yet receive only 6-7 percent of bank lending. They often pay 13 to 14 percent, while large corporations enjoy preferential rates. For SMEs, a drop from 11 percent to 6 percent could mean survival versus closure. Still, flooding SMEs with cheap credit while inflation accelerates could prove equally destructive; their customers lose purchasing power as input costs rise. Most concerningly, aggressive rate cuts threaten our USD 7 billion IMF lifeline. The IMF programme sets explicit inflation and external account targets. Deviating from these goals for short-term stimulus would risk losing IMF support, other multilateral funding, credit rating downgrades, and potential financial collapse. Politicians understand these stakes but face immense electoral pressures. The political cycle creates powerful incentives for artificial growth stimulation. The SBP's independence is crucial; it must withstand political expediency and aggressive business lobbying. What direction should the SBP take on July 30th? Neither paralysis nor wholesale surrender provides the solution. Comparing Pakistan with regional peers is easy on paper, but the realities differ significantly. With Pakistan under the IMF's 26th programme, our circumstances are distinctly different. Our regional peers have challenges of their own (tariffs, employment, inflation), but these differ greatly from ours. Further easing should rely on concrete evidence: sustained inflation below 5 percent, a continuous current account surplus, genuine export growth, and controlled import expansion. Businesses deserve encouragement, but alongside clear accountability. This moment demands structural actions beyond merely adjusting interest rates. Businesses advocating 5 percent rates must support conditions enabling those low rates sustainably. Productivity must rise, exports must increase, import dependence must decline, and the informal economy must formalize. The SBP could channel lending toward productive sectors such as export-oriented industries, import substitution, technological upgrades; it should restrict credit for consumption and imports through targeted actions. Special Export Zones (SEZs) providing affordable credit for export-focused sectors represent an effective strategy. Broad, indiscriminate rate cuts represent a risky path, as previously detailed. Offering cheaper refinancing options for exporters and SMEs while maintaining standard consumer loan rates can achieve a strategic balance. Though not perfect, targeted support is preferable to across-the-board reductions. The Rs3 million vehicle loan ceiling should remain unchanged despite industry pressures; Pakistan requires productive investments, not increased traffic and fuel imports. Direct credit toward expanding productive capacity rather than fuelling consumption. Pakistan faces a critical decision point. Business frustration after enduring prolonged high interest rates is understandable, yet the solution proposed by businesses risks destabilizing the economy. Genuine progress demands patience, restraint, and fundamental reforms rather than quick rate cuts. The SBP must balance growth aspirations with stability requirements, navigating political pressures against economic realities. Interest rates are blunt instruments; careless handling within Pakistan's fragile economy resembles surgery with imprecise tools. July 30th would be a decisive moment. Pakistan must choose between sustainable progress and another boom-bust cycle. Prudence, not impulsiveness, should guide this decision. The real question isn't just about reducing rates, but about creating conditions for sustainable low-interest growth. Until then, the SBP must act with caution, providing targeted relief while mitigating inflation risks. Copyright Business Recorder, 2025
Business Recorder
15-07-2025
- Business
- Business Recorder
Govt hikes petrol price by Rs5.36, diesel by Rs11.37 per litre
The federal government on Tuesday hiked the price of petrol by Rs5.36 per litre for the next 15 days, raising it to Rs272.15. The rate for high-speed diesel was also increased by Rs11.37 per litre, taking it to Rs284.35 per litre. In a notification, the Finance Division stated that the new prices will take effect from July 16, 2025. In the last fortnightly review, the government had increased the petrol price by Rs8.36 per litre to Rs266.79, and diesel by Rs10.39 per litre, to Rs272.98.
Business Recorder
15-07-2025
- Business
- Business Recorder
Fuel prices likely to increase
ISLAMABAD: Petrol and diesel prices in Pakistan are expected to increase by up to Rs6.60 (2.5 percent) per litre for the next 15 days starting from July 16, 2025, according to an estimate of the petroleum industry. The estimated increase includes Rs6.60 per litre increase in petrol and Rs5.27 per litre (1.9 percent) rise in High-Speed Diesel (HSD). However, other petroleum products - kerosene oil and Light Diesel Oil (LDO) - may witness reductions of Rs3.74 (2 percent) and Rs2.23 per litre (1.3 percent), respectively. The estimates are based at Rs78.02 per litre Petroleum Levy (PL) and CSL on petrol and Rs77.01 per litre PL/CSL on HSD. Inland Freight Equalization Margin (IFEM) is assumed at Rs8.89 per litre on petrol and Rs6.04 per litre on HSD. Exchange rate adjustment on petrol may be Rs3 per litre on petrol and Rs2 per litre on HSD. Govt hikes petrol price by Rs8.36, diesel by Rs10.39 per litre According to the estimates, the premium on petrol is $9.68 per bbl and $3.25 per bbl on HSD. The Oil and Gas Regulatory Authority (OGRA) will finalise its recommendations on 15 July based on the latest global market trends and government's budgetary target of PL and carbon tax and Finance Division will announce new petroleum prices. In case the estimates of oil industry implements, the price of petrol would go up from Rs266.79 per litre to Rs273.39 per litre and HSD's price would rise from Rs272.98 to Rs278.25 per litre. On July 1, the federal government has increased petrol and HSD prices significantly attributing the hike to global market volatility amid the Iran-Israel war. Petrol increased by Rs8.36 to Rs266.79 per litre, and HSD by Rs10.39 to Rs272.98, based on OGRA's recommendation. Pakistan imports refined petrol around 85 percent of its petroleum consumption and 15 percent crude oil. Copyright Business Recorder, 2025
Business Recorder
02-07-2025
- Business
- Business Recorder
Small traders reject hike in rates of fuel prices
KARACHI: The All Pakistan Organisation of Small Traders and Cottage Industries, Karachi chapter on Wednesday come out strongly against the government's recent increase in fuel prices, condemning it as an 'anti-trader, anti-economy' decision that will only deepen the crisis already engulfing Pakistan's commercial capital. Led by their President, Mahmood Hamid and senior leadership including Syed Liaquat Ali, Javed Haji Abdullah, Naveed Ahmed, and Usman Sharif, the body rejected the hike of Rs8.36 per litre in petrol and Rs10 in diesel, calling for its immediate reversal. The leaders described the move as a cruel blow delivered just a day after the imposition of Rs463 billion in new taxes through the federal budget. 'This shameful fuel price hike will paralyse the economy,' they warned. 'It will raise transport and logistics costs, trigger fresh waves of inflation, and make business operations unaffordable—pushing both ordinary citizens and small traders to the brink.' They painted a bleak picture of Karachi's civic landscape, already reeling from post-monsoon neglect. 'Markets are submerged in filth, with stagnant water still not drained. Roads across commercial centres look like archaeological ruins, battered by decades of neglect. Power outages are routine, and K-Electric's excessive billing and poor service have become unbearable,' they said. According to the traders, the sudden spike in fuel prices will only exacerbate these conditions, as transportation of goods becomes costlier, shop rents soar due to electricity adjustments, and consumers cut spending amidst rising living costs. In particular, they took strong exception to Section 37AA of the new budget, which empowers tax officials to detain traders and recover taxes directly from their accounts. Terming it 'draconian and disgraceful,' the leaders said it violates constitutional protections and business ethics. 'The tax net cannot be expanded by treating traders like criminals,' they said, warning of a citywide protest movement if the clause is not withdrawn. The traders dismissed gains in the stock market as 'artificial window dressing,' saying real economic progress is impossible without structural support for the business community and proper civic governance. 'Karachi is the backbone of Pakistan's economy, but it's being choked with taxes, fuel hikes, and criminal neglect. This cannot continue. We demand that the government stop punishing the city that pays the country's bills,' the statement concluded. Copyright Business Recorder, 2025
Express Tribune
30-06-2025
- Business
- Express Tribune
Fuel price hike burns a hole in public pockets
The federal government on Monday night made a massive increase in the prices of petroleum products for the next fortnight, seen as an impact of the 12-day Iran-Israel war that nearly threatened to engulf the entire Middle East region. According to a notification issued by the Finance Division, the price of petrol was jacked up by Rs8.36 per litre and that of high-speed diesel (HSD) by Rs10.39 per litre for the period of July 1 to 15. The prices were raised on the recommendation of the Oil and Gas Regulatory Authority (Ogra). "The Government has decided to revise the prices of petroleum products for the fortnight starting today, based on the recommendations of OGRA & the relevant ministries," the Finance Division notification stated. The notification said that petrol will now be available at Rs266.79 per litre – Rs8.36 per litre up from Rs258.43 per litre. Similarly, the HSD rate is jacked up to Rs272.98 per litre from Rs262.59 per litre, registering a hike of Rs10.39 per litre. Pakistan is a net importer of oil and imports around 85% of its total requirement of petroleum products, mainly from the Middle East. The local oil and gas companies produce crude oil to meet 15% of the total oil needs. Last month, Israeli airstrikes on Iranian nuclear and military sites resulted in a sharp increase in prices of crude oil that jumped 711% to around $8287 per barrel, which was the highest level in six months, according to reports. This increase came after Iran's threat to close the Strait of Hormuz in the Persian Gulf. However, the ceasefire between Iran and Israel resulted in bringing the price of crude oil back to $67 per barrel during the June 2326 period, roughly reverting to pre-war levels by June 26. In Pakistan, the HSD is widely used in the agriculture and transport sectors. Therefore, the fresh increase in its price will bring an inflationary impact on the consumers. Because of its use in the transport sector, the cost of goods transportation will go up, resulting in higher inflation across the country. Petrol, on the other hand, is used in motorbikes and cars and is considered to be an alternative to compressed natural gas (CNG). Gas utilities had stopped supplying indigenous gas to the CNG stations, especially in Punjab; therefore, the CNG outlets had been using imported gas for over a decade. The recent increase in prices of petrol would also minimise the difference in the price of CNG and petrol. The prices take effect on the first day of the new fiscal year 2025-26. The government has a space to absorb the increase in the prices of petroleum products by adjusting the petroleum levy. At present, consumers are paying over Rs77 per litre petroleum levy on diesel and petrol. However, the government had adopted the way of increasing the prices of petroleum products rather than rescuing the consumers from this increase. The consumers were expected to face more increases in oil prices as the government had set a Rs1.4 trillion revenue target on account of petroleum levy, the highest in the country's history. The petroleum levy revised target was Rs1,161?billion for FY?202425. Additionally, the government had also imposed a carbon levy on petroleum products that would result in further increases in the prices of petroleum products.
