Farhan Bokhari , FT Syndication Service
ISLAMABAD: Pakistan's government plans to phase out politically-sensitive fuel subsidies during the new financial year, starting on July 01, as it tries to bring a ballooning budget deficit under control, according to senior Pakistani officials.
The government spent $2.4bn during the fiscal year that ended last Monday to subsidise domestic fuel prices and protect consumers from a sharp rise in global oil prices.
"The deficit is unsustainable," one government minister told the Financial Times. "We have to pass on all the increase in fuel prices to our consumers. By December 2008, there [will] be no fuel-related subsidies in Pakistan."
The plan for a phased end to subsidies was confirmed by several other senior officials.
Pakistani consumers paid the equivalent of less that $75 a barrel of crude oil last fiscal year, the minister said. Even after the government raised the price of petrol by 10 per cent last Sunday, to Rs75.69 ($1.11) a litre, prices remain well below those paid in many developed countries.
To bring it into line with international market prices, Pakistan would have to raise the price of petrol by only about 20 per cent, officials said.
Prices of diesel and kerosene, which are used by far more people, would have to be raised by far more, potentially provoking political unrest. The price of diesel would have to be raised by 55-58 per cent while kerosene would have to be raised by 75-80 per cent, officials said.
The oil price hikes could have a political cost for the coalition government which is already facing an Islamic insurgency and disquiet over food price rises.
