The government finally swallowed the bitter pill as it announced on Thursday that the rates of petroleum products will be increased by Rs30 per litre, paving the way for reaching a staff-level agreement with the IMF by June 12. As a result of this increase, ex-depot prices of petrol would increase to Rs179.86 per litre, high-speed diesel (HSD) to Rs174.15, kerosene to Rs155.56 and light diesel oil (LDO) to Rs148.31. This was an extremely hard decision for the government to take considering the political costs, but it was an important one for the future stability of the economy and the country overall.

Of course, this is a drastic increase and the burden will be felt be across the board, but it is important to remember that despite this increase the government will still be paying about ex-depot prices of petrol would increase to Rs179.86 per litre, high-speed diesel (HSD) to Rs174.15, kerosene to Rs155.56 and light diesel oil (LDO) to Rs148.31.

Removing the petroleum subsidy was the biggest hurdle standing in the way of a staff-level agreement with the IMF and the hope is that the programme will now soon be back on track. Reports reveal the IMF officials had also demanded the revival of petroleum levy and general sales tax, but the government pushed back by saying that such abrupt shocks were not feasible politically and economically. The government is right in proposing the alternative of gradually adding to the financial burden, but it must ensure that it follows through on its promises because we cannot afford any disruptions to the IMF programme.

This is going to be a hard adjustment phase for the population, especially for the economically disadvantaged. For those segments of the population, the government has indicated that it will seek to provide some relief which is essential given how they have to bear a disproportionate burden of such policies. However, next on the horizon is an increase in electricity prices which will go into effect from June 1 onwards. This too will further stoke inflation, which already stands at a record high at the moment.

There are no perfect solutions given the prevailing circumstances and the government has finally taken the right decision in the interest of the country. Successfully reviving the IMF programme will also open up other avenues of financial assistance and investment with key partners like China, and other institutions like the Asian Development Bank (ADB). The government must ensure that it makes the most of such opportunities in the near future because restoring any semblance of stability to the fragile economy is going to be a tall task.