With global oil prices falling, Pakistan needs to make the right choice

In early April, when international oil prices began to soften, the Pakistan government made a conscious decision not to pass on the relief to consumers. Instead, it increased the petroleum development levy (PDL) from PKR 60 per liter to approximately PKR 78 per liter citing the need to fund development initiatives, particularly in underdeveloped regions like Balochistan.

While revenue generation is important, the timing and approach to these adjustments have significant implications for inflation and public sentiment.

Fast forward to late June, global oil markets experienced a sharp spike in prices amid escalating tensions between Israel and Iran. Though a ceasefire has since brought some calm, and international oil prices have started to retreat, the government is expected to raise domestic fuel prices by up to PKR 15 per liter on July 1. This would be the second fuel price hike in just over a month despite the easing trend in global markets.

This anticipated increase, however, may not be necessary or wise.

With international prices now trending downward and further declines expected in the first half of July, the government has a window of opportunity to act responsibly. Rather than transferring the entire burden to consumers, it can adjust the petroleum levy downward on July 1, absorbing the short-term cost pressure through a modest sacrifice in levy collection.

If this global downward trend sustains, the government can then restore or even increase the levy on July 16, once international prices stabilize at a lower level. This way, pump prices can remain stable, protecting the public from another inflationary shock while still allowing the state to meet its fiscal needs.

This two-phase approach offers a more balanced and responsive fuel pricing strategy. It shows that the government is not just reactive but also sensitive to both economic realities and public hardship. In a fragile economic environment, where every rupee matters for the average household, such strategic decision-making is essential.

Rather than relying on blunt price hikes, the government can utilize smart fiscal maneuvering to strike the right balance between revenue needs and inflation control. This method not only strengthens public trust but also reflects sound governance rooted in empathy and foresight.