Clearing the backlog

After remaining indifferent spectators for well over a year, the authorities of the country are trying to make up for the lost time and are clearing the backlog in a hurry. It was only a fortnight back that the government had announced a considerable increase in domestic oil prices as well as electricity tariff.
On 15th March, it again revised the prices of petroleum products upward by about seven percent. According to an Oil and Gas Regulatory Authority (OGRA) notification, the price of petrol goes up to Rs 62.81 per litre from Rs 58.70, diesel from Rs 36.07 to Rs 38.59, kerosene oil from Rs 38.73 to Rs 41.44, and HOBC to Rs 74.77 from Rs 69.88 with effect from 16th March, 2008.
The upward revision in prices, the government said, was inevitable to cut down subsidy on petroleum products which had amounted to Rs 80 billion during the first eight months of the current fiscal year. It was revealed that the cumulative differential for the fortnight would still be Rs 10.5 billion which the government would bear as subsidy. According to Ogra, even after the increase in prices, the government would have to provide a subsidy of Rs 18.05 per litre on kerosene oil and Rs 16.02 on diesel.
The fact is abundantly clear that it was not possible for the government to keep the domestic prices of petroleum products stable when the international prices of oil were now hovering around $110 per barrel and the government had projected an average price of only $69 per barrel in its last budget.
Any further delay in pushing up the domestic oil prices would have raised the level of subsidies to new heights, resulted in a much larger budget deficit than the target of four percent of GDP envisaged in the budget for 2007-08 and breached the provisions of FRDL Act, 2005. Of course, the increase in domestic prices of POL products would accentuate inflationary pressures in the economy and erode international competitiveness of our products, but the risks of a high budget deficit and fiscal mismanagement would also be equally horrendous.
In fact, even the developed oil importing economies are not immune to the shocks of increasing international oil prices and have to adjust to the new situation by raising the domestic petroleum prices, which has pushed up their inflation rates and reduced their growth potential and export prospects. The plight of lower strata of society in some of the countries is particularly distressing because they have to face higher food inflation and, in certain cases, loss of employment.
However, while recognising the inevitability of such a move, a few observations would be in order. Authorities in Pakistan could have managed the crisis of soaring international oil prices in a better way if they had adhered to the policy of adjusting domestic oil prices with the international trends periodically and not allowed political expediency to prevail over economic imperatives.
Both Shaukat Aziz and the Caretaker Governments were guilty of this opportunistic tendency. While the Shaukat Aziz government reneged on its promised policy altogether, the Caretaker Government took the unpopular action only in its last days in office when it did not have to bother about its political cost and inflationary consequences of the measure were to be felt after it had departed from the scene.
In fact, the new government may be forced to raise the prices of POL further if the prices in the international market continue to increase at the present rate and it wants to stick to the original budget estimates or, at least, follow a prudent fiscal management.
Also, every government talks about measures which could improve the overall fuel and energy situation by taking certain imaginative steps, but no real efforts are yet seen on the ground with the result that dependence on imported sources of fuel and energy continues to increase. For instance, despite tall claims, no worthwhile effort is in the offing to tap indigenous alternative sources of energy. Even the use of energy savers for lighting purposes and public transport buses has not been popularised.
There is still no reduction in line losses of Wapda and KESC to provide some relief to the honest consumers who pay their bills regularly and are asked to pay more frequently. Obviously, it pays to be dishonest and a non-payer. Above all, the severe implications of a rise in international oil prices could be minimised by reducing or eliminating taxes on the commodity but it could only be done if exempted sectors of the economy and tax evaders were made to pay taxes according to their capacity, come hail or high water.
Unfortunately, vested interests rule the roost most of the time. In short, while we understand the compulsions of the government to increase domestic oil prices in the short-run, it would be a short-sighted policy not to move on some of the other fronts in a decisive manner to reduce the pain of adjustment inflicted by global developments.