A visibly agitated Finance Minister Miftah Ismail gave one press conference, addressed the All Parties Economic Recovery Conference and was a guest in at least five talk shows on Tuesday 16 August — the day the rise in the price of petrol by 6.72 rupee per litre became effective.
Too much exposure did little to appease a populace struggling under year on year Sensitive Price Index (SPI) of 42.31 percent for the week ending 18 August, a July Consumer Price Index (CPI) of 24.9 percent and core inflation (non-food and non-energy) of 12 percent. Contrast this with a widespread strike action planned in the United Kingdom against 10 percent inflation accounting for a decline in take home income by only 3 percent and one need not wonder why the anger against the incumbent government in Pakistan is rising to dangerous levels.
The Prime Minister has yet to publicly support this decision though without his support the price rise could not have been announced especially as during an inter-party meeting to discuss the subject Nawaz Sharif left the room, or so tweeted his daughter. Ismail tweeted on 16 August “Ogra takes the average of Platt prices, adds freight and premium paid by PSO on top of these prices and multiplies that by the exchange rate. In addition, it also trues up the previous fortnight’s cost.”
The only public support for Ismail came from his sole staunch supporter in the PML-N, Shahid Khaqan Abbasi, who noted that the prices of petrol and products are set by Oil and Gas Regulatory Authority (Ogra) based on three factors notably: (i) international price of the product (Platt refined and not Brent which is crude oil); (ii) the average rupee dollar parity for the previous 15-day period under review; and (iii) the price of fuel at the time it was purchased, with a lag of 45 days. The recent price rise, so claimed, Abbasi and Ismail is due entirely to the average rupee-dollar parity as no additional taxes have been imposed. Two observations are in order.
First, if one looks at the Ogra calculations for the price of petrol, High Speed Diesel (HSD), kerosene and Light Diesel Oil (LDO) effective 1 August till 15 August the average exchange rate taken was for 9 days only — from 15 July to July 27 with weekends excluded. It is unclear why July 28, a Thursday, and July 29, a Friday, were not taken into consideration to determine the price from 1 to 15 August. Perhaps because the rupee-dollar parity on 28 July had peaked at 240.42 and on 29 July to 239.9 rupees. The average of these nine days was calculated at 225.06 rupees to the dollar which enabled the federal government to not only: (i) meet a prior condition of the International Monetary Fund (IMF) under the seventh/eight review (completed on 13 July) to raise the Petroleum Development Levy (PDL) from 10 to 20 rupees per litre on petrol, and from 5 to 10 rupees per litre on HSD, kerosene and LDO. This required a raise in the price of HSD by 8.95 rupees per litre (3.95 rupees in excess of the rise in PDL), kerosene by 4.62 rupees per litre and LDO by 0.12 rupees per litre; and (ii) the rise in the price of HSD may have enabled the government to offset the need to raise the price of petrol and instead it reduced the rate by 3.05 rupees per litre – perhaps considered a politically astute move at the time as petrol is used by a large number of extremely vocal owners of motorbikes and cars. The IMF was assured that this would be corrected in the next fortnight.
Determining the price effective from 16 August till 1 September therefore required correction of the petrol price set a fortnight ago that was made possible by taking the average foreign exchange parity for 12 days – July 28 to 15 August minus the weekends – which gave the average rupee-dollar parity of 227.85. It is unclear whether Ogra did a sleight of hand in determining the price of petrol for the first fortnight of August or whether it was the government that came up with the suggestion.
Only when this correction was notified did the IMF release the Board meeting date of 29 August and for determining the veracity of this claim it is necessary to look at the timing of a series of statements: on 30 July Chief of Army Staff Bajwa talked to the US Assistant Secretary of State Wendy Sherman requesting intervention in expediting the IMF Board approval date required for tranche disbursement. On 2 August the IMF declared that Pakistan had met all prior conditions by raising the PDL and gave 24 August as the tentative date of the Board meeting. On 16 August the notification for the rise in petrol was issued and on the 17th the IMF Resident Representative in Islamabad gave the board date of 29 August.
Second, the premium paid to secure a consignment has been rising with time. Miftah acknowledged that the country paid 8.5 dollars per barrel premium on diesel and 17.5 dollars per barrel on petrol.
To argue that the price of petrol is likely to decline because of the consistent decline in the rupee dollar parity (subsequent to the telephone call between Chief of Army Staff Bajwa and Sherman) and the decline in the international price of oil due to an increase in global supply (with Iran supplying one million barrels per day) and China, a major buyer on the market, suffering a recession due to its zero tolerance policy on Covid-19, maybe wishful thinking.
Be that as it may, Miftah Ismail has already warned the public that PDL will be raised by 10 rupees per litre effective 1 September as part of a pledge made to the IMF and the actual price of petroleum and products would, in addition to the taxes levied at the time, depend on the three determining factors noted by Shahid Khaqan Abbasi.
To conclude, Miftah Ismail’s policies are the subject of considerable criticism by economists and the general public coupled with his persistent failure to impress his own colleagues leave alone his opponents that he has the capacity to think out of the box to check the seemingly unchecked SPI, CPI and core which is partly attributable to the rise in government expenditure by one trillion rupees in the current budget and partly to the heavier than ever reliance on foreign and domestic borrowings.
Copyright Business Recorder, 2022