EDITORIAL: The decision to raise prices of petroleum products for the rest of the month wouldn’t have been such a hard sell if the government hadn’t earlier promised not to fiddle with them. It’s been forced to do so, of course, to meet the petroleum levy target and also because crude is rising in the international market with New York oil futures already at a 32-month high and not looking to slow down anytime soon. That’s left consumers, already unhappy that the levy to please the International Monetary Fund (IMF) is being squeezed out of their pockets, miffed with what is very much a U-turn on another one of the prime minister’s own promises; this time of not passing on any burden from international prices on to domestic consumers.
There’s also the fact that this decision has come at an awkward time for the government - just when it was patting itself on the back for doing a fine job with next year’s budget. Now the opposition will make sure that the debate shifts right back to inflation because the Rs 2.13 per litre increase in petrol and Rs 1.79 per litre increase in diesel prices will surely feed into second round inflation across the board as more expensive fuel makes transport and therefore just about everything else more expensive as well. This is going to pinch weary consumers because while the economy might be recovering from the Covid shock, the jobs and earnings of a lot of them aren’t just yet. This is just the kind of situation where an economy rebounding too fast too soon can leave a lot of people behind, many of whom are then mauled by a combination of low and stagnant wages and high prices.
Such factors ought to be enough of an argument against raising the petroleum levy target to Rs600 billion for the next fiscal, but the IMF is simply in no mood to listen, and the government chose not to resist on this point as it did on a number of others that made the budget so “people-friendly.” So now there is going to be some uptick in inflation no matter what you do about it and a very unnatural and unnecessary pressure on prices is going to affect policy at the finance ministry as well as the State Bank of Pakistan (SBP). Meantime, the successful vaccination drive across the world along with gradual resumption of international travel will make sure that Brent crude keeps rising. That’s sure to sour popular sentiment and give the government yet more headaches as the next general election draws near.
But such is the fate of all countries that rely almost completely on imported oil to meet their needs. That is why most of them have learned to do two things. One, store plenty of stocks whenever the international price plunges. And two, never make bold claims that can never be backed by actions. Pakistan has done neither. We have displayed neither the wisdom to benefit from price fluctuations nor ever bothered to create adequate storage facilities for excess stock. And our politicians are only too fond of making promises that they can’t keep, just like protecting domestic consumers from international price distortions. That is why they have to deal with economic as well as political consequences of such developments.
If prices keep rising like this then, one way or the other, the government will have to do something about the taxes it charges on fuel. Otherwise, the typical consumer response would be to cut back on demand, which will ultimately weigh the economy down. And it wouldn’t fetch the kitty much to write home about either. It is not an easy situation but now that the government is aware of the expected price trend for the rest of its tenure, hopefully a well thought-out strategy to deal with it will not be long in coming.
Copyright Business Recorder, 2021