March 2, 2011

Fuel price hike sparks anger

Fuel price hike sparks angerISLAMABAD PAKISTAN increased fuel prices by 9.9 percent on Tuesday reflecting the global rise in prices, in a move that could create fresh anger among the public worried about a sharply rising cost of living.

A previous price rise, in January, was reversed days after its implementation when an important coalition party left the ruling alliance to protest against the increase, destabilising the government of Prime Minister Yusuf Raza Gilani.

That party, the southernbased Muttahida Quami Movement, also condemned the Tuesday price rise and has said it would announce a response if the government did not reverse the raise within three days.

“The decision to increase the prices ... is completely anti-people, as it will result in price hike in other daily usage items which will affect the poor people,” the party said in a statement.

Pakistan, where tens of millions of people live in poverty, is struggling to control inflation.

The consumer price index (CPI) rose 14.19 percent in January from the same time last year.

The government is also facing a widening budget deficit in an economy that has been propped up by an $11 billion International Monetary Fund (IMF) emergency loan programme since 2008.

An IMF team is due in Pakistan on Tuesday to review its economic performance, a source involved with the talks said.

The IMF says Pakistan must make tough economic reforms to revive the economy.

But rising prices can exacerbate dissatisfaction with an unpopular government which is also facing attacks by Islamist militants allied with Al Qaeda.

The United States, struggling to pacify neighbouring Afghanistan, sees stability in Pakistan as vital for keeping the government and military focused on rooting out militants based in lawless areas along the Afghan border, and attacking in both countries.

The price increases on Tuesday saw petrol go up 9.9 percent, from 72.96 rupees (85 U.S. cents) a litre to 80.19 rupees, the state Oil and Gas Regulatory Authority said in a statement.

Light diesel prices also rose by 9.9 percent to 73.21 rupees a litre, an increase of 6.60 rupees.

Economic analysts say Pakistan is likely to overshoot a revised budget deficit target of 4.7 percent agreed with the IMF in November 2010.

Some forecast the deficit to be about 8 percent, higher than the central bank’s prediction of between 6.0 and 6.5 percent, if fiscal reforms are not implemented.

Financial analysts said the fuel price increase would send the right message to the IMF, which has been pressing the government to cut a range of subsidies.

“The government had no choice but to increase oil prices as it has no fiscal space, and this is also a good signal to the IMF (International Monetary Fund),” said Asif Qureshi, director at Invisor Securities Ltd.



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