Compounding economic ‘crisis’

Rising need of petroleum and its heavy taxation leaves the common man stripped of his earnings, and renders the lives of the poor more miserable than before, but despite all these, brings in super-duper profits to the petroleum companies and revenues in trillions for the government.—Rana Bhagwandas Commission Report on Petroleum Prices submitted to Supreme Court of Pakistan in 2009

The poor economic performance of the coalition government of Pakistan Tehreek-e-Insaf (PTI) is adding miseries to the life of the common man and their pursuit of living with access and affordability to necessities of life is becoming more and more challenging. All this hue and cry is falling on deaf ears as the Goebbels of government are busy blowing trumpets on their so-called economic performance. The fiscal tightening and the rising inflation on account of increasing utility prices, rationalization of taxes, measures to reduce the primary balance, and exchange rate adjustments, along with higher oil prices, are the key challenges faced by the economy of Pakistan.

The actual situation is completely different as compared to claims made by the PTI government. The pace of inflation in recent years is un-paralleled and the country has rarely witnessed such a steep increase in prices of everyday items. The basic reason behind this inflationary trend is poor planning, lack of decision-making capacity, and below-par administrative controls. As per the latest release by the Pakistan Bureau of Statistics (PBS), the Sensitive Price Index (SPI) for the last five months ranges around the average of 18% to 20%! It is an undisputed fact that the people of Pakistan are experiencing the highest fuel prices, highest utility rates, and record prices of basic commodities in the history of Pakistan.

The comedy of errors in recent liquefied natural gas (LNG) purchasing is a classic example of incompetence and indecisiveness of this government. In Aug 2021, the state-run Pakistan State Oil (PSO) purchased a cargo of LNG at $20.055 per unit (almost 27.54 pc of Brent), which is being considered the second-highest summer purchase in the world. Comparatively, the government of Pakistan Muslim League Nawaz [PML-N] had a long-term supply contract with Qatar at 13.37% of Brent. Now earlier this month, a wire agency reported that the PTI government failed to secure any offer against tender seeking LNG cargoes for delivery over December 2021 to January 2022. This situation has raised alarm bells for domestic and commercial users as the gas supply crisis in winters can reach critical levels.

Power tariffs are revised northwards frequently given the constant pressure from International Monetary Fund (IMF); more is expected to come in upcoming months. Recently published state of energy report by National Electric Power Regulatory Authority (NEPRA) draws attention to inefficient decision making by the government. It states:

“During the FY 2020-21, the power sector witnessed the under-utilization of most efficient RLNG power plants and some other cost-efficient power plants. Under-utilization of these power plants i.e. operating these power plants on part load is reducing their efficiency and increasing their Energy Purchase Price (EPP) on one hand while on the other hand, unutilized capacity is increasing their per unit capacity payment”.

The circular debt is growing constantly and has doubled since this government took charge. Higher Transmission & Dispatch losses of distribution companies (DISCOs), lower recovery of billed amounts, and non-payment of subsidies are among the major causes of circular debt accumulation which as on 30-06-2021 stands at around PKR 2.3 trillion!

Foreign debt reached USD 122.2 billion in Jun-21

The PML-N in its four-year term added US$ 35 billion and executed mega projects like power projects, mass transit, road networks, etc. Whereas, the incumbent PTI government failed to launch any mega project and so far added US$ 27 billion to the debt stock in its first three years of term (2018-23). On the domestic front, the debt in July-21 mounted to a historic high level of Rs 27,518 billion and most of the budgeted receipts are consumed in debt servicing. The composition of external debt and liabilities is also changing rapidly. Historically, Pakistan had relied on long-term concessional credit inflows from multilateral and bilateral sources, however, now the focus is diverted on commercial loans and debt instruments which carry high interest costs. The impact of this adventure is adding no value to the life of the common man but raising national debt. Pakistan debt and liabilities summary shows that the amount of debt each Pakistani owed in June 2018 was approximately Rs 135,000 which rose to 60% in the last three years and now each Pakistani owes approximately Rs 217,000.

It is in fact strange that despite the complete support of all stakeholders, the PTI government failed to provide the basic necessities to the people of Pakistan. The historic hike in fuel prices and electricity shows that the miseries of the common man will not be over anytime soon. During the last three years, the Pak rupee was devalued by over 50%. The US dollar to Pak rupees parity was around 115 when the PML-N completed its tenure in 2018, whereas today it stands above 175 in the open market. With foreign debt piling up and payments falling because of the moratorium, the Pak rupee is expected to take further blows and lose its strength against the greenback. This will further complicate the economic situation.

The PTI government must get its act together and try to focus on economic stability. With the frequent changes in the financial team, we have witnessed four finance ministers and five heads of Federal Board of Revenue. These changes eventually lead to inconsistency in decisions and policies. The most annoying part is that we always have to request the IMF to revise our revenue targets. Moreover, on the domestic level, the government has failed to exercise and assert its power and there is no control on pricing of various commodities and some elements within the government are blamed by the media for taking undue advantage of this which further adds fuel to already high level of inflation.

The government needs to enhance its capacity to collect taxes which is vital for running the government’s affairs, and this ad-hoc approach towards such critical functions will not serve any purpose. It is about time the government, in consultation with experts and business stakeholders, came up with a joint economic agenda which could devise a guideline for our economic journey. By plugging loopholes that prevent wealthy companies and individuals from paying a fair share of taxes, the PTI government can generate enough revenues through levy of excess profit tax and carbon tax on oil companies to build public transport system that would save billions that we mercilessly spend on import of POL products.

(Huzaima Bukhari & Dr. Ikramul Haq, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’. They have recently coauthored a book, Pakistan Tackling FATF: Challenges and Solutions)

Copyright Business Recorder, 2021