Finance Minister Asad Umar announced a Rs2 decrease in the prices of petrol and diesel on Friday.

Umar, while addressing a press conference in Islamabad, explained how fuel prices for consumers are determined.

The prices for next month are determined on the basis of the current month's average prices, he said. "The price is set when the ship [carrying fuel] starts moving from [its point of origin]," he said.

"When we got the recommendations for October, there had been a rise in prices in the international market and the rupee value had fallen. So according to Ogra's calculations there was to be an increase. The prices had just been set at that time. We thought about it a lot, we thought it would be a temporary phenomena, so we shouldn't pass it on immediately. So we didn't increase any prices that month."

"We didn't increase prices for consumers, so we had to decrease the tax rates," he explained.

"Then the month after that, there was an even greater increase. In October, it was $84-85. We thought this would be too much of an increase, so we raised the price only half as much as was recommended and had to decrease the sales tax and petroleum development levy."

"If I compare, the sales tax on diesel in May was 27.5 per cent, while in November it was just 12pc ─ less than half. The 15pc GST on petrol was reduced to 4.5pc. The petroleum levy on diesel was set at Rs6.51 from Rs8 and on petrol from Rs10 to Rs6.15," he added.

"The purpose of doing this was that, since prices were rising, we wanted to reduce the pressure on citizens by decreasing the tax rate. Luckily, the international prices started falling in November."

"We are trying to pass the benefit onto consumers," he said, adding that the government has decided to decrease the prices of petrol by Rs2, diesel by Rs2, kerosene by Rs3, and light-diesel oil (LDO) by Rs5."

After this decrease, the petroleum development levy has more or less returned to its original position of Rs8, and the sales tax is, after this change, 8pc on petrol and 13pc on diesel, he said.

'Rupee devaluation with other policies to produce positive results'

The finance minister also noted the movement in the rupee value in the interbank market today, and said it appeared the dollar had settled at Rs139.

He said he wished to explain "what is happening, who reduces the value of the rupees, why it is happening and what impact it will have on the people and the economy".

He explained that the State Bank of Pakistan (SBP) sets the currency rate, and defended the decision. He shifted the blame onto the previous government, saying that rupee devaluation was imminent due to the flawed policies of the PML-N regime.

He added that the devaluation was necessary because of a number of reasons, including increased foreign loans, decreased foreign exchange reserves, low exports and artificial cap on the value of dollar.

"Rupee value cannot be controlled forever. Even during the PML-N's tenure, the value of rupee against dollar had reduced by Rs28," he said.

"We artificially increased the value of rupee by purchasing dollars. As a result, we started importing vegetables and we were unable to export surplus sugar and wheat without providing subsidiary," he said.

"The issue of dollar is associated with supply and demand," he said, adding that the former government subsided foreign traders and taxed the locals. The gap between supply and demand of dollar will remain continue till we address the issue of production and foreign investment, he said.

"We had two options, either to continue the old practice of artificially controlling the value of rupee [or to devalue the rupee,]" the finance minister said.

He concluded, "Devaluation is not a good thing to do, it increases inflation but the devaluation coupled with other policies [being adopted by the PTI-led government] will produce positive results."

He added that the rupee value had not been impacted by bailout talks with the International Monetary Fund.

"The IMF didn't give us a target for the rupee value, we are holding discussions over the system of exchange rate. A 100pc free floating exchange rate will not be suitable and we need a transition period, but that has not affected the exchange rate," he said.