EDITORIAL: Prices of petrol and high speed diesel (HSD) were raised by 19.95 and 19.90 rupees per litre, respectively, for the first fortnight of August, against Oil and Gas Regulatory Authority’s (Ogra’s) recommendation to raise prices by 37 rupees per litre (inclusive of 16.5 rupees per litre customs and regulatory duty) premised on 55 rupee per litre petroleum levy on petrol and 50 rupee per litre on HSD.
The announcement was delayed by a day because as per Finance Minister Ishaq Dar the decision-makers were looking at different ways to reduce prices. In this context, it is relevant to note the related paragraphs in the International Monetary Fund’s (IMF’s) Stand-By Arrangement (SBA) documents: (i) regulators Ogra and Nepra determinations to be passed on without any input/changes by the executive; and (ii) increasing the maximum petroleum development levy to 60 rupees per litre and increases to reach an average rate of 55 rupees per litre over fiscal year 2024 that will add an extra 79 billion rupees to the budgeted 869 billion rupees.
Clearly, these two programme conditions were violated by the government while deciding the prices of petrol and HSD for the first 15 days of August, violations that did little to convince an overburdened citizenry operating under a negative 0.5 percent growth rate in the year just past, that this was the best the government could do in terms of prices under the circumstances.
A rise in the price of fuel will have a cascading effect on transport costs, be it of people or goods including perishables, and energy costs with direct implications on eroding the value of each rupee earned – an erosion that is concurrently being experienced in imports of other essential items, including cooking oil.
The July Consumer Price Index is calculated at 29.3 percent, 1.1 percent lower than in June, may reflect well on the performance of the Finance Minister; however, it does little to generate goodwill amongst the general public because the rate rise remains untenably high with all the claimed decline in prices of transport (with a weightage of 5.91) and housing, water, electricity, gas and fuels (with a weightage of 23.63) in July over the previous month rendered irrelevant with the recent rise in fuel prices.
It is indeed extremely disturbing that all the finance ministers appointed by civilian and military governments over the past four to five decades – be they qualified economists or bankers or accountants – have not changed the basic thrust of economic policies that continue to include elite capture of not only the source of revenue (over 70 percent of all taxes collected are in the indirect tax mode whose incidence on the poor is greater than on the rich and 70 percent of all direct tax collections are also sourced to withholding mechanism in the sales tax mode which is an indirect tax) and expenditure (with less than 4 percent of current expenditure earmarked for Benazir Income Support Programme) and budgeted subsidies of over a trillion rupees remaining untargeted as they are not delivered through Benazir Income Support Programme.
No finance minister to date has had the temerity to reduce current expenditure but all have routinely overstated development budgets to convince a populace that development is a major agenda item which is then severely slashed at the end of the year as the country teeters towards an unsustainable budget deficit, essentially a highly inflationary policy. Borrowing heavily domestically and crowding out private sector credit has also been the norm – funds that are injected back into current expenditure.
It is indeed sad that the finance minister during the budget speech instead of announcing meaningful pension reforms that would start employee contributions boasted that his envisaged reform would allow one pension per individual. While he never mentioned the amount of savings this would entail yet one would assume that this is a tip of the iceberg defined as the 761 billion rupees pension budgeted for the current year.
The Fund staff continuously exhorts the government in the SBA documents to undertake resolute revenue mobilisation from the more affluent to increase the BISP envelope and meet the health and education targets and to decrease current expenditure, yet no structural benchmark has been placed on reduction in current expenditure by the Fund either.
It is imperative for a massive reduction in not only the current expenditure tilted towards the elite but also to raise the percentage contribution of direct taxes that are based on the ability to pay principle.
In this instance the statement by former Chairman FBR Shabbar Zaidi that he was unable to implement reforms that would allow direct taxes to contribute the lion’s share to revenue collection, inclusive of ending smuggling across our porous borders, by civilian and military leadership reflects the obvious: no finance minister, be he a technocrat or a party member, has dared or if he did, managed to tilt the elite applecart and until and unless this is undertaken in a meaningful way, Pakistan will go from one economic impasse to another with an increasingly discontented citizenry.
The time for action can no longer be deferred and one would hope that the next finance minister engages with all the elite stakeholders to drastically slash current expenditure that in turn would increase our leverage with multilateral/bilateral lenders.
Copyright Business Recorder, 2023