In Pakistan, a significant increase in gas tariffs has sent shockwaves through the economy, with widespread implications. The gas tariff hike of up to 193% is expected to lead to a surge in inflation, potentially reaching 24.5% in the current fiscal year. This steep increase is primarily driven by the fact that industries, including fertilizers, cement, steel, and chemicals, will likely raise their product prices to offset the higher costs, ultimately burdening consumers.
The fertilizer sector will witness a rise in feed and fuel stock prices, making agricultural production more expensive. Cement and steel sectors are also hit hard, with their gas tariffs doubling, leading to price increases for construction materials. Chemical companies, relying on gas-based captive power plants, are grappling with rising gas prices, necessitating price hikes for their products.
While this gas tariff increase aligns with the conditions of an IMF loan program, it will likely generate gas development surcharges, benefiting public gas utilities. It’s expected to reduce the gas sector’s circular debt, alleviating financial strain on key companies like Pakistan State Oil and Oil and Gas Development Company. Overall, this development reflects the complex economic challenges facing Pakistan, with rising costs and inflation affecting various sectors of the economy.