Pakistan, Fuel prices, Impact on Economy

Pakistan keeps petrol prices steady, slashes HSD by Rs 7 per litre

As of November 2023, the price of petrol stands at Rs281.34 per litre.

Impacts of fuel prices change on economy of a developing country

• Higher fuel prices can lead to increased costs for the production of goods and services, inflation, unemployment, reduced demand for products other than oil, lower capital investment, tax revenue decline, and budget deficits increase, driving up interest rates.
• Higher costs of living, reduced household disposable income, and reduced spending in other areas (leisure, household goods, services) are also some of the impacts of higher fuel prices.
• The impact of fuel prices on inflation is more significant in developing countries than in advanced economies.
• The purchasing power of all households declines as fuel prices increase, but the distributional impact is progressive.

How can a government reduce inflation impact of higher fuel prices in common people?

• Reduce the retail price of transport fuel by reducing taxes on fuel, providing subsidies to fuel consumers, or by regulating the price of fuel ¹.
• Increase fuel efficiency by encouraging the use of public transportation, promoting carpooling, and investing in alternative energy sources such as solar, wind, and hydroelectric power ¹.
• Use monetary and fiscal measures to control inflation, such as controlling the money supply in the economy, tight fiscal policy, and supply-side policies ².

Using alternative energy sources to control fuel-based inflation?

• Yes, there are several success stories of using alternative energy sources to control fuel-based inflation in both developed and developing countries.
• For instance, the United States has been successful in reducing its dependence on oil imports by increasing the use of alternative energy sources such as solar, wind, and hydroelectric power ¹.
• Similarly, Morocco has been successful in reducing its dependence on fossil fuels by investing in renewable energy sources such as wind and solar power ¹.
• India has been successful in increasing the use of alternative energy sources such as solar, wind, and hydroelectric power ¹.

Options for the government to boost the economy while fuel prices are rising?

• Yes, there are several ways for the government to boost the economy while fuel prices are rising.
• Invest in infrastructure projects such as roads, bridges, and public transportation. This can create jobs and stimulate economic growth ¹.
• Provide tax incentives to businesses that invest in renewable energy sources such as solar, wind, and hydroelectric power. This can encourage businesses to reduce their dependence on fossil fuels and promote sustainable economic growth ¹.
• Use monetary and fiscal measures to control inflation, such as controlling the money supply in the economy, tight fiscal policy, and supply-side policies ².