Last week, the Pakistan government reduced the petrol price by Rs. 12/liter taking it down to Rs. 270 from Rs. 282/liter. The decision, on its face value, seemed a good one as it gave a much-deserving relief to the inflation-hit masses of the country, but is it actually the right decision? Top global economist Atif Mian has discussed this issue in a detailed Twitter thread where he compared Pakistan’s current economic situation with countries with a similar or worse position, Ghana and Sri Lanka. The economist compared the currency devaluation and current petrol prices in these three countries.
In his first tweet, Mian wrote Ghana and Sri Lanka formally defaulted during the last two years; Pakistan did not, but the currency was devalued by 1/2 for both Pakistan and Ghana and 1/3rd for Sri Lanka.
He mentioned that Pakistan is currently selling petrol at a price that is 20-25% below the price it is sold in Ghana and Sri Lanka, India and Bangladesh. “At the same time, the government is restricting imports of raw materials needed for production and export,” he said.
For a brief comparison, petrol price in Ghana is PKR. 324/liter, while Sri Lanka is selling 340/liter. In comparison, the price in Pakistan is Rs. 270/liter.
Mian concluded his threat by writing: “In other words, the government would rather cut the country’s GDP in order to sell cheap petrol! But then lower GDP will make it more difficult to pay off the debt – leading to more devaluation – more misery – and higher petrol prices in terms of purchasing power.”
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