ISLAMABAD (Reuters) – Pakistan’s government ordered a sharp increase in petrol and diesel prices for the second time this month, in order to reduce subsidies that have become financially crippling because of soaring world oil prices.
A 7 percent increase came into effect on Sunday, following a 10.7 percent hike on March 1.
Despite a steep rise in crude and petroleum product prices on the world market, the government had avoided raising domestic prices for 22 months.
Analysts say the main reason the decision was put off was because politicians had not wanted to damage the prospects of the earlier coalition government supporting President Pervez Musharraf as it went into an election on February 18.
A caretaker government was set up last November to run the country until after the election, but it also drained the coffers by delaying the hike in petroleum prices.
Musharraf’s popularity has plummeted because of peoples’ anger at soaring prices, and his support for a U.S.-led war on terrorism and because of the authoritarian steps he took last year to hang on to power.
The pro-Musharraf parties lost the election, and the incoming coalition has inherited an economic mess.
The new government, which should be sworn in and take over from the caretaker administration by the end of March, will have to deal with a mounting fiscal deficit and widening current account deficit, along with rising inflation and power shortages.
There has been speculation in the media that the new government will ask Saudi Arabia to revive an oil payments facility first extended in the late 1990s, whereby Pakistan can defer payments for Saudi oil imports.
Pakistan’s Oil and Gas Regularity Authority (OGRA) said the latest price adjustments was effective from Sunday.
An OGRA statement showed the per liter price of petrol was increased to 62.81 rupees from 58.70, while light diesel oil jumped to 38.59 rupees from 36.07.