The consecutively escalating petroleum prices are not only impacting the production cost but have also disrupting the upstream and downstream supply chain of the industrial sector. The recent increase in petrol and diesel prices by PKR 14.92 and 15 respectively has rung alarm across the country, mainly in its economic hub, Karachi. The issue is, that the import-dependent SMEs like pharma and the auto-parts sector are already being hit with a burning hammer, as over 90 percent of the active pharma ingredient (API) is imported from China via air freight along with a fuel surcharge, whereas, in the auto-parts industry, paint, rubber and plastic inputs are oil-linked. Yet, the increase in petroleum levy by the government has caused anxiety in the business community.
Faisal Moiz Khan, President of North Karachi Association of Trade and Industry (NKATI) told Daily Times, that the industry was already in a distress due to high energy cost, irrational taxation, contractionary monetary policy as well as extrotion phone calls, yet, a harsh increase in petroleum prices has proved to be Frankenstein Monster for the industry, especially the small and medium enterprises (SMEs) along with the factory workers, who are not able to afford a commute and cost of living despite a reasonable salary. He affirmed, that recent amplification in petroleum prices could escalate the inflation rate to unbearable levels in the near future.
Sheikh Muhammad Tehseen, President of the Federal B Area Association of Trade and Industry (FBATI), told Daily Times that due to a brutal augmentation in diesel prices by 93% cumulatively, the freight charges have soared by 40%, while the inflation rate has reached a 22-month high of 10.9%. In the context of international prices, he noted, that Sri Lanka, Bangladesh, Vietnam and other Asian countries have witnessed a minor change in fuel prices compared to Pakistan, as the government has a petroleum levy agreement with the IMF, which has resulted in devastation of small and medium enterprises, that were already facing challenges like access to finance, red tapes and irrational energy prices.
Business leaders of large-scale industrial zones including SITE Association of Trade and Industry and Korangi Association of Trade and Industry (KATI) have also highlighted the issues related to production cost and declining competitivenes of the industry. Besides, the SMEs leaders have urged the government to negotiate with the IMF regarding the Petroleum Development Levy, as the factories are on brink of closure, as exports are already facing retrogression due to rising cost-of-doing-business and transportation charges, with a swelling trade deficit hitting 46-months high in April 2025, at 4 billion USD.
While, in the wake of bulging trade deficit, inflaming inflation and industries turning into godowns, the government is still ambitious for the upcoming budget. Nonetheless, it’s as plain as day, that “small is beautiful”, the future of Pakistan lies in foxy little things rather than seizing the wild blue yonder. Small businesses and small dams can overcome the economic crisis. Conversely, the government seems to be interested merely in overcoming the FBR shortfall without expanding the tax net, removing Final Tax Regime for the exporters and attracting, allegedly, incentive-based remittance to balance the payments.