Oil and Gas Regulatory Authority (Ogra) is expected to propose, through a summary, an increase in the price of petroleum and products to the government by the end of this month that would reflect a rise in their international price, according to a Business Recorder exclusive. However, the report adds that, based on decisions taken by Pakistani governments in the past, there is a concern that the PML-N government may decide to reject Ogra's recommendation on purely political as opposed to economic considerations.
History shows that our governments have, time and again, subordinated economic decisions to political considerations even though they, no doubt, are fully cognisant of the negative outcome of such decisions on the state of the economy with repercussions trickling down to the grass root level. The most disturbing relatively recent example was the decision to keep the price of oil and products constant by the Musharraf-led government due to the scheduled 2008 general elections in spite of a steady rise in their international price - from 79 dollars crude per barrel in mid-2006 to as high as 144 dollars per barrel in July 2008. This decision accounted for massive subsidies which consequently led to an unsustainable budget deficit of over 8 percent and compelled the newly-elected PPP coalition government to go on an International Monetary Fund (IMF) programme a few months after it took over power. As usual, when borrowing from the Fund the agreed economic reform agenda was politically challenging and in 2010 the Zardari-led government decided not to implement reforms pertaining to the power and tax sectors prompting the Fund to suspend the Stand-By Arrangement (SBA) with two tranches remaining undisbursed. The suspension led to other multilaterals as well as bilaterals not extending budgetary support (programme lending) though project support continued for Pakistan and the last two years of the PPP-led coalition government witnessed a decline in borrowing from abroad which was made up by heavy domestic borrowing.
The PML-N government has been extremely lucky in that oil prices began to plummet soon after it took over power. This declining trend allowed it to raise taxes on oil and products, thereby creating fiscal space, and at the same time reduce their price for consumers with the Prime Minister announcing any price decline for obvious political point-scoring though he has not deemed it prudent to announce a price rise leaving that task to his Finance Minister. At the same time, remittances continued to rise during the first three years of the incumbent government's tenure as the economies of the Gulf Co-operation Countries (GCC) took time to adjust to their declining revenues. However, the situation today is that oil prices have begun to inch upward and remittances from GCC countries have begun to decline. Or in other words, to keep the taxes at the same high level and prices unchanged today would require reducing taxes that would lead to a revenue loss of 5 billion rupees which, in turn, would negatively impact on the budget deficit and raise the general price level.
It may be recalled that in September 2014, during the three-month-long PTI and PAT dharna, the Finance Minister announced a decline of 1.3 percent in the price of oil and products and added that more would have been passed on, the estimated decline in the international price was 7 percent, but for the fact that the dharna had led to a rupee depreciation. In this context, it is relevant to note that the rupee remains overvalued - to the tune of 20 percent in the three years as per the IMF final review report. Based on its record, one can only hope that the government would take economic decisions in the national interest and not subordinate them to their political considerations. However, there are few, if any, takers for the government to decide to raise oil prices as is expected to be proposed by Ogra in its summary as the effectivity date would be 1st November, a day before the Islamabad lockdown march announced by Imran Khan.
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