Petrol politics - episode III

A leader of a large political party that still happens to be in the government coalition lauded its members for not letting the government increase the petrol prices and congratulated the 98 percent deprived people on the achievement.
And so, the political agenda has won over economic rationality once again for the third straight month, which is another telling blow for the fiscally constrained government.
It looks like the international oil prices were waiting for the government to absorb another price hike as they crossed the $100/bbl barrier on the very day the government announced its defeat.
Pakistanis are now filling their fuel tanks at the same rates they were paying in November, whereas the international oil prices in the meanwhile have jumped from $81//bbl to $94/bbl - a significant rise of 16 percent.
The current strategy, if it can be called a strategy, is reminiscent of the dying days of Shaukat Aziz era - where the politically weak position led to the freezing of petroleum prices in a bid to gain political mileage - only to leave the economic condition in a huge mess, which even today continues to haunt the countrys economy.
Peoples gain is the governments loss, as the loss in revenue collection is believed to have touched the Rs15 billion mark on account of the Petroleum Levy. Quite ironically, though, the PPP-led government cannot even claim the political advantage, as the smaller coalition partners have taken that honour, making it a loss-loss situation for the ruling party.
This is what happens when economic decisions are based on political motives and false hopes. It is quite clear by now that the coalition partners will not allow the government to raise petroleum prices, so the only option for the government is to pray for global oil prices to fall - a prayer that is not likely to be answered in the near future.
The Egyptian crisis is bound to deepen as it is expected to spread over a large part of the Middle East - which is why the oil price has shot up. Some experts even see it touching the highs of 2008; and if that happens, it will be catastrophic for Pakistans fortune if the current policy of absorbing the price hike continues.
The Petroleum Levy on petrol, which is now down to a mere Rs2.2/litre from the original Rs10/litre, is soon expected to get to the zero level.
So far, the government has only opted to let go a portion of its revenue. But the continuation of this strategy would lead to subsidising petrol in real terms as there is not much room left for the PL to be slashed. Any decision to keep subsidising domestic fuel would mean that the government will have to pay for the petroleum products from its own kitty, which by the way hugely depends on borrowed money from banks.
This should also send signal to the State Bank, which recently banked on hopes that political parties will come up with some concrete actionable economic reforms. Competence aside, there seems absolutely no will on the part of these political groups to make tough calls to arrest the economic woes. It is sad that such a decision of economic importance have to be based on hopes at a time when there seems none.