PRICES of petroleum products have been revised upwards yet again: petrol by 6 percent, HSD by 4.7 percent, high octane by 6 percent, kerosene by 3 percent and LDO by 3.43 percent. Additionally a 10 percent gas surcharge effective from 1st February has been imposed and LPG price raised by rupees 15 per kg from 3rd February. There is no question that this decision would have a major impact on the general price level: from electricity tariff to transport costs to the costs of production of domestic manufacturing units as well as the kitchen budget to farm products. In effect no item, be it a luxury or an essential is likely to remain unaffected by the decision of raising POL prices. The critical question is why has the government decided to raise the prices of POL products? A simple and much cited reason by the economic managers is that the government is merely passing on the rise in the international price of oil to the consumers.
The domestic gas price is being raised in line with an economically justifiable decision: to equalise the price of imported and domestic fuels to ensure optimum utilisation of a domestically scarce fuel. Sound logic indeed! However, what the government does not revisit is its obviously flawed policies that over a four-year period have shown to be ineffective. To date the government has relied on demand management through raising the utility price as well as periodic injections into the energy sector either as direct untargeted subsidies or through enabling the liquidity-strapped sector (due to failure to eliminate the inter-circular debt) to pay for fuel imports in the very short-term. It is by now patently evident that demand has not declined as an outcome of higher rates and this is attributable to the failure of the government to ensure more than 70 percent payment of energy bills (with the biggest offenders being the government ministries/departments/Federally Administered Tribal Areas) or control the line losses that are well above sustainable levels. Additionally, the government policy of heavy subsidisation is not benefiting the end consumer but aiding the poorly performing discos. Last year, the government budgeted 30 billion rupees as inter-disco tariff differential for Wapda/Pepco and 2 billion rupees for the KESC.
Actual subsidies in 2010-11 amounted to 239 billion rupees and 45 billion rupees respectively. And disturbingly the executive, including the Prime Minister, have directed the relevant authorities to expand the energy network for political reasons. Thus demand is actually rising and that too as a consequence of government directives. Exhorting the government to implement economically viable policies, has led to a vigorous defence of these very same flawed policies in spite of there being positive proof that they have failed. Senior members of the executive have revealed that the budget for the next fiscal year would be announced in May, before the elections, and in this context one can safely assume that the budget would contain measures that would be directed to alleviate the lot of the masses. Thus, it is expected that the budget would include an expansion of the Benazir Income Support Programme, together with all its associated programmes, and a rise in the Public Sector Development Programme.
However given that the 2011-12 budgetary estimates bear little relation to actual figures both in terms of expenditure (current and development) as well as revenue generation, the budget for 2012-13, however people-friendly, would simply not have the fiscal space to lend any credibility to its implementation. It is extremely doubtful that the committed reforms in the tax system and the energy sector - whose continued non-implementation formed the basis of the International Monetary Fundís decision to suspend the 2008 Stand-By Arrangement - would be implemented in an election year. Analysts argue that the government can restructure public sector entities that would release around 300 billion rupees of annual budgetary allocations - money that is more than sufficient to change the public perception of the performance of the PPP governmentís past four years. Even if the government injects the necessary amount into the financially weakened PSEs, it is unlikely that a reversal of their economic fortunes would be possible in one-year until and unless injections are accompanied by senior appointments based on merit (experience and education) and abandoning the policy of using these entities as recruitment centres. Meanwhile the steady erosion of the rupee value domestically is leading to an escalation in the crime rate, which in turn, is further fuelling the perception that Pakistan is not a place to visit - either for doing business or for tourism. Unfortunately, it appears unlikely that economic considerations would be allowed to outweigh political considerations in an election year. To draw from the Presidentís terminology, one can only hope something changes the Ďmindsetí of the current decision-makers thereby enabling them to announce and implement policies that would target the poorly performing macroeconomic indicators.