The Oil and Gas Regulatory Authority (OGRA) has, after approval from the Executive, notified the largest ever increases in the prices of oil and related products: petrol has risen by a whopping Rs 10.97, HOBC by 7.23, kerosene by 8.64, and LDO by 7.45.
The man who holds the portfolio of the Chief Executive of this country, namely Prime Minister Yousuf Raza Gilani, did not consider it politic to announce the rise in his address to the nation less than 24 hours prior to the OGRA notification and effectivity of the new prices.
Instead, Gilani delivered his speech not with confidence which may have led to the perception that he did has a vision after all, but with doubt; and exhorted the people of the country to reduce consumption of fuel and edible oil to save billions of dollars in foreign exchange and to reduce the budget deficit.
Few believe that this massive oil price rise is going to change the way this government is running its business: frequent cabinet meetings, including those of Economic Co-ordination Committee (ECC) of the Cabinet, all over the country at a great cost to the exchequer, for it requires transporting and housing quite a number of government officials from Islamabad to another city, as well as paying transport for the frequent party consultations that the PPP Co-Chairman has scheduled outside the country have become the norm during the first 100 days plus of the PPP-led coalition government.
Whatever the political cost to the government whenever the prices of oil and products are raised the fact remains that there is a real sound economic need to raise the prices of oil to the international level.
THE REASON HAS BEEN EXPLAINED TO A HAPLESS PAKISTANI PUBLIC TIME AND AGAIN: there is no money in the kitty to pay for subsidies; by relying on deficit financing and borrowing from abroad to pay, for these subsidies in the past year or so led to a dramatic rise in the budgetary deficit which has a greater inflationary impact than if the oil prices were raised.
This logic is now arguably accepted by the hapless public. What is not acceptable is the timing: from Monday the 14th of July till Friday 18th of July the price of a barrel of crude had dipped by more than 10 percent which had led to the availability of cheaper gasoline and diesel prices in the US market. The timing of the rise was thus not propitious in this regard.
In addition, it is relevant to note that at this point in time the government has been successful on two counts that should have had a bearing on oil prices in this country: the fact that the government has got the Saudi oil facility for three years which implies that Pakistan would be paying for oil in three years time instead of as and when oil is purchased from Saudi Arabia; and foreign assistance has begun to filter into the country in spite of the country's poor macroeconomic fundamentals with the expected release of World Bank budgetary support intervention.
The government would, in all probability, justify the oil price rise by maintaining that it is part of its strategy to reduce the overall budgetary deficit. One would hope in that case that the government comes up with visible proof of a cut in its own expenditure. More disturbingly, there is an element of profiteering in our markets that continued unabated. These are two vastly different commodity markets - grains, which include wheat and rice, and oil.
Elements of profiteering include traders' withdrawal of a commodity from the market in anticipation of a price hike to be announced by the government in an effort to maximise windfall profits on existing stocks and/or selling the product in neighbouring countries with the same objective. This was witnessed in the grains market of the country and, unfortunately, was witnessed in the oil market prior to the OGRA notification.
What is critical for the government at this juncture is to launch an inquiry as to who was responsible for the leak to the gasoline stations of a possible price rise; and strict action must be taken against that person(s) to ensure that this aspect (material information about the rise in prices that had been disclosed to gasoline stations) must be appropriately dealt with.
The Interior Ministry has stated that it will take serious note of the continuous smuggling of diesel and petrol to neighbouring countries, however few hold any hope of this statement ever translating into a successful policy.
The government has few options, it is true, but within the available options it appears to have chosen the option that seriously compromises the ability of the common man to make ends meet. Even prior to the price rise the number of suicides had risen. It is a foregone conclusion that the numbers will rise further.
It is, therefore, imperative for the government to follow, in the short term, a strategy designed to raise taxes on those with the ability to pay and slash its own wasteful expenditures. Ending corruption would generate money for the treasury as well.
However, past practice has shown us that no government has been successful in undertaking such policy measures: be it Musharraf or Nawaz Sharif or, indeed, Benazir Bhutto. One can only hope that given the severe economic issues facing the country today the present government takes the necessary steps. Unfortunately, however, it has hardly shown any positive inclination in this regard.