EDITORIAL: Prime Minister Imran Khan has directed the relevant authorities not to raise petroleum and products' prices in the current month by reportedly maintaining that the common man cannot bear any additional burden of a price raise. The decision not to raise prices in spite of the recommendation by Oil and Gas Regulatory Authority's (Ogra's) proposal to raise rates across the board, a proposal based on the price of the commodity in the international market, indicates that the political leadership is fully aware of the hardships facing the common man today due to rising food prices that are partly attributable to supply issues and partly to a rise in their cost of transport due to higher POL prices. The linkage between the prices of POL and the general price level is fairly well established as farm to market transport costs and factory to wholesale and retail market transport costs rise with a hike in POL prices.
The government's capacity to absorb a rise in the international prices of oil is not linked to increasing subsidies, an expenditure item, but in terms of reduced revenue generation given that successive governments, including the incumbent one rely heavily on taxing POL products as it is relatively easy to collect. Thus a decision to keep prices of POL products constant at a time when their international price is rising would necessarily imply adjustment in revenue collections of 450 billion rupees from petroleum levy and sales tax which is levied at the rate of 17 percent.
However, POL price rise in Pakistan is also associated with rupee depreciation and in this context it is relevant to note that the rupee has been depreciating against the dollar since late 2018 when the then Shahid Khaqan Abbasi administration acknowledged, subsequent to an International Monetary Fund (IMF) mission, that the rupee was overvalued due to the flawed policy of Ishaq Dar during his four and a quarter year tenure as the country's finance minister. The rupee's depreciation accelerated subsequent to May 2019 after the country agreed to the IMF condition to adopt a market-determined exchange rate leading to a rupee decline in value on average from around 140 rupees to the dollar to the current level of over 168 rupees to the dollar.
POL prices' impact directly on the pocket of the common man and hence the Prime Minister's decision not to raise their price would be welcomed by all. However, the decision not to raise rates is not politically as popular as the one to reduce rates. Additionally, the government's economic team leaders are trying to focus the public's attention on the lower inflation rate today compared to the previous year and during the comparable period in the tenure of PML-N and PPP as proof positive that things are better under the PTI administration; however, this too is hard sell for two reasons. First, prices are continuing to rise even of those commodities (notably, sugar and wheat) whose inquiry reports were released amidst much fanfare, accompanied by threats by the Prime Minister and his cabinet that the 'mafias' would be dealt with sternly. And secondly and more importantly, while during previous administrations wages rose in tandom with inflation yet during the current year salaries in the public sector have not been raised while the private sector has been laying off workers as well as reducing salaries since before the pandemic due to contractionary monetary and fiscal policies followed by the incumbent government after the staff level agreement was signed with the IMF on 12 May 2019.
The government needs to revisit the pace of its monetary and fiscal policies before it can succeed in disseminating a feelgood factor amongst the country's population.
Copyright Business Recorder, 2020
Comments
Comments are closed.