There might be some respite to the consumers come April as the government intends to approach the IMF for a waiver on the agreement to raise power tariffs by 6 percent. The foreign Minister, Mr. Qureshi has also hinted on seeking Americas help to convince the IMF for yet another relaxation.
Getting the IMFs favour at this point in time does not seem to be an easy job especially when other partners of the IMF are critical of it granting waivers to Pakistan. Moreover, Pakistans own programme with the IMF is in jeopardy on the VAT bill issue and the IMF certainly would least want another request of a waiver knocking on their doors.
If the government eventually succeeds in obtaining the lenders favour, it will add further pressure on the budget managers of the country. The government has kept aside Rs55 billion to account for the electricity subsidy as the cost and price difference is planned to be bridged by the phased increase in electricity tariffs.
To protect the load shedding hit consumers from the tariff hike, the government will need another Rs25 billion. News reports suggest that this amount would be drawn from the subsidy allocated in the budget for imported wheat.
Needless to say, withdrawing the huge amount from wheat subsidy will set the stage for another wheat crisis. It is an important mention, that Pakistans wheat crop is expected to miss the target by a good 3-4 million tons primarily due to delayed harvesting of the sugarcane crops.
Whether or not inviting a potential food staple crisis is the best way out of delaying the inevitable is a question best left to be answered by the policymakers. The finance ministry has based its request on the notion that another electricity tariff increase would result in widespread consumer outrage, but doing so at the cost of expensive wheat makes less sense as consumers response would be no different in this case either.
Having said that, delaying the 6 percent agreed increase in electricity tariffs alone would still not protect the consumers from expensive electricity during April. Pepco is expected to increase the per unit electricity charges by Rs1.2/kwh on account of Fuel Price Adjustment (FPA), regardless of the fate of the agreed 6 percent tariff increase.
The FPA increase would have graver consequences on the electricity bills than the phased tariff rise as this would be the single largest increment in the tariffs, since the introduction of FPA. To elaborate the case in point, for the consumers using electricity in the range of 100-300 units, the average per unit tariff will increase by a staggering 20 percent to Rs7.09/kwh from the current level of Rs5.89/kwh.
Whereas, if the government does not get entertained upon its request to the IMF, the resulting tariff increase for this consumer bracket would be a much reasonable 6 percent. Just how would a 6 percent tariff increase would cause more panic and chaos than the 20 percent rise beats logic.
Maybe it is something to do with the fact that the IMF backed tariff increase would get more publicity than the one caused by the FPA. But, surely, there is no point in delaying the inevitable especially when the fallout would anyways be there because of the FPA increase.