EDITORIAL: The government, unexpectedly, raised the price of motor spirit (MS) by 6.72 rupee per litre to 233.91 rupee per litre and light diesel oil’s (LDO’s) by 0.43 rupees per litre. However, it decreased the price of high speed diesel (HSD) by 51 paisa per litre and kerosene’s by 1.67 rupees per litre. Sceptics suggest that this may not reflect the international prices of oil and products but an attempt to correct the anomaly in the prices announced for the fortnight past with petrol price slashed by 3.05 rupees per litre, light speed diesel’s by 0.12 rupee per litre while the price of high speed diesel increased by 8.95 rupees per litre and kerosene’s by 4.62 rupee per litre.

While the government may attribute the rise in the price of petrol to the time lag associated with placing the import order and the arrival of the commodity in the domestic market yet raising the price of petrol from what was set on 1 August does raise a few questions, given that the international prices of oil slumped this week past for two reasons. First, the return of Iranian oil to the market — Iran’s Petroleum Ministry recently acknowledged that the country is exporting more than one million barrels of crude oil and gas condensate per day — while China, a major buyer, has cut down imports of oil as it is in a self-imposed recession due to its zero tolerance of Covid-19 policy.

In other words, the prices of oil are on the decline in the international market and therefore the policy of passing on the international prices to domestic consumers does not appear to apply in the recent instance.

So what could be the possible reason for the raise in petrol’s and light speed diesel’s prices — a politically challenging decision, to say the least.

The obvious answer is that it is to demonstrate strict compliance with the terms and conditions agreed with the IMF and ensure a seamless IMF board’s approval of the staff-level agreement reached with the Fund’s mission for release of the USD 1.17 billion tranche by the end of this month. There are still a few steps that are required to be taken because of the government’s recent withdrawal of the fixed tax on traders.

Additionally, there are reports that the income tax on deemed income on immovable property may also be withdrawn and there would also be some sweeteners by way of tax relief that may be offered to investors in the stock market along with some correction in heavy taxation imposed on the banks in the finance bill.

All these measures would impact the budget and new avenues for raising revenue would have to be found or rates increased on existing taxpayers to balance the budget. In other words, any tinkering with the tax provisions would have to be compensated by additional or increased levy to avoid slippages.

There is also evidence to suggest that the revenue shortfall may not be the only concern of the government. The floods in the country today have caused massive losses and the federal and provincial governments have been compelled to engage in not only relief activities but also allocate funds for rehabilitation of the affected areas and this expense is likely to exceed the allocation made in the budget for contingencies. With another rain spell expected in the country this week it is likely that the required funds would be even higher, which in turn would have implications on the budget deficit.

It is likely that the Fund would require the government to enhance revenue generation from other sources to meet this expenditure and there are reports that the federal government is mulling discovering possible revenue sources and is expected to enact a supplementary budget by way of an ordinance.

While criticism of the recent price increase from within the PML (N) ranks and leadership as also the coalition partners is understandable in terms of the political cost that is being incurred in adhering to the conditions of the Fund programme, but the compelling reasons for such strict adherence to ensure continuation of the programme on which the entire edifice of external assistance by multilaterals and the most closest of our friends stands cannot be denied.

It is about time our governments and political parties accorded preference to economic stability and prosperity over political capital or else the portents for the national economy, social harmony and welfare of the people are too grim to be speculated about.

Prime minister Shehbaz Sharif and finance minister Miftah Ismail deserve praise for having withstood their ground to abide by the terms of the Fund agreement instead of compromising on the national interest with a view to preserving and protecting political capital. That the incumbent government has clearly demonstrated to all and sundry that economic matters now have a clear precedence over politics is a fact.

Copyright Business Recorder, 2022