On July 4, the government of Pakistan reduced the price of petrol by Rs1.97 per litre. Officials described this as relief. Jamaat-e-Islami described it as a joke. Both were correct.
On July 11, the government raised the price of petrol by Rs13.18 per litre. The petroleum development levy is now at Rs80 per litre — a record. Petrol costs Rs310.71, also a record.
The government did not choose either number. The Rs1.97 reduction came because international oil prices fell slightly for the review period. The Rs13.18 increase came because they rose sharply after the US-Iran ceasefire collapsed and tankers were struck in the Strait of Hormuz. OGRA calculated the import parity price, applied the formula, and the formula produced these outputs. The government signed the notification.
This is what Pakistan’s fuel pricing system was designed to do. The weekly review mechanism — introduced partly at IMF insistence — is intended to pass international price movements through to the domestic consumer without delay, so that the government cannot indefinitely subsidise petroleum at a fiscal cost it cannot afford. This is a correct policy position. Petroleum subsidies in Pakistan have historically been a transfer from the poor (who pay the taxes that fund the subsidy) to the middle class (who own vehicles). Getting rid of cross-subsidisation is economically sensible.
The problem is the levy.
The petroleum development levy is now Rs80 per litre on petrol. It is not indexed to the consumer’s ability to pay. It does not fall when international prices rise; it rises, or stays constant, regardless. It is the government’s primary instrument for extracting revenue from fuel sales, and it is load-bearing in the IMF programme: without it, Pakistan’s fiscal deficit would be wider than the Fund will tolerate, and the programme would be at risk.
So this is the structure. International oil prices go up: consumer pays more. International prices go down: the government keeps much of the reduction via the levy, and the consumer gets Rs1.97. The system is not designed for the consumer. It is designed to collect revenue and satisfy the Fund.
None of this is secret. None of it is illegal. It is, in fact, the rational response to Pakistan’s fiscal position: the government has no money, it needs revenue, fuel is the most reliable base on which to collect it, and the IMF is watching. The levy is what you get when a government that cannot tax agriculture, cannot document real estate, and cannot audit large traders needs to balance its books.
JI’s protests yesterday were politically useful and economically correct in their diagnosis. But they were addressed to the wrong institution. The lever that sets the petroleum levy floor is not in Islamabad. It is in the programme targets agreed with Washington.
The Rs13.18 hike is not a policy failure. It is a policy working exactly as designed — for objectives other than keeping petrol cheap.
The question worth asking is not “why did prices go up?” but “who is this system for?” The answer, at Rs80 per litre in levy, is not the person filling a motorcycle tank in Faisalabad.
