Today will be a busy day for the government. Today, will also be the day when the governed will witness a bout between economic rationality and populist rhetoric.
After two previously failed attempts, the parliamentary committee will seek to convince fellow politicians about the inevitability of a price increase in petroleum products. So far, however, both the opposition and the coalition partners have maintained they would not allow the government to omb the nation with a fuel price hike.
The government is making desperate efforts to inform the opponents that it is in the best interest of the countrys economy to pass on the global oil price hike as the revenue loss on account of the Petroleum Levy has already mounted to Rs5 billion. It is right in pointing out that the country cannot afford to maintain petroleum prices because of escalating, in oil prices in the international market.
Despite these efforts, the government cannot distance itself from the responsibility of the mess, both on the account of establishing its writ and the failure to successfully persuade its partners and Opposition.
And that sadly arises from the governments weak political position in the parliament, owing to which, it seems, it has decided to keep afloat by hook or by crook. It will also be difficult for the MQM and others to let the government increase the prices having made bold public statements earlier.
Now, if the prices are actually raised, it will be a 13 percent increase, which is massive; and based on that, the media at large will likely bash the government. How unfortunate!
Had they absorbed the pressure last month, the increase for February would have been a much manageable 3 percent and easier to sell. But this is what happens when you delay the inevitable and place your strategies on false hopes, which in this case was hoping for a slide in international oil prices. Little do the politicians know that global commodity prices are like time and tide: they care for none.
What is worse is that the oil prices have not gone up massively in January as they did in December; this would rather give the government another opportunity to succumb politicians demands.
Had the oil prices averaged a notch higher than they actually did, the potential loss in Petroleum Levy collection could have been much higher than the Rs3 billion estimated in case the current prices are maintained.
The government may now again be tempted to bear the revenues loss on hopes of slide in oil prices, come the next revision. If lady luck favours the government, it could well work as oil price movement remains volatile. But going by oil price forecasts, it could be a perfect recipe for disaster as oil prices are widely predicted to go further up.
Should the political mileage win over economic rationale, the already-troubling fiscal deficit would worsen even more, which would lead to more government borrowing, more money printing, higher inflation, depreciation of rupee and eventually more expensive oil imports. It is imperative that the government does not repeat the fatal mistake just to save the crown, for the consequences might be more severe than raising the petrol price.
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