Talking business

Is economics finally in the driving seat, or are the country’s economic problems being politicised? This is the big question over the political deliberations that began in earnest in the outgoing week. From the looks of things, economics remains in the back seat, although what political compulsions are driving the process are not yet known.

What is known is that the government has clearly lost control of its economic agenda. Completely, contradictory commitments have been given to the IMF on the one hand, and the political opposition on the other. The big question now is how the finance team intends to reconcile these.

For all the deliberations and committees and subcommittees of the outgoing week, the one problem that lies at the very epicentre of our economic troubles went completely unaddressed: how to raise more revenues? The fiscal deficit of the government is the epicentre of our economic difficulties, and some real, meaningful and credible combination of raising revenues and cutting expenditures must lie at the heart of any serious attempt to reckon with these difficulties.

Instead what we got was more hype. A 30 per cent cut in current expenditure without touching subsidies? Hype! “Revisiting” the petrol pricing formula without knowing clearly who will bear the cost of rising international fuel prices? Hype! A new committee to examine power and gas outages and recommend solutions? Hype!

It takes a committee of one fifteen minutes to discover that there is no room in current expenditures for any further cuts after debt servicing, defence and law and order outlays. Whatever is left will not add up to anywhere near 30 per cent. Either the cuts will come from subsidies, which means higher prices, which means eating crow for those parties who threw a fit over the fuel price increases of end-December, or the cuts will come from a rescheduling of domestic debt. A massive rescheduling. What implications might that have for our banking sector, for whom the government paper is the only profitable line of business in this era of rising non-performing loans?

Petrol pricing

And if our finance team thinks that by “revisiting” the petrol pricing formula they can find a way to hoist the cost of rising fuel prices onto the oil marketing companies (OMCs), then I’m afraid it’s amateur day at Q block. Others have tried to squeeze OMC margins before, only to find the OMCs withholding fuel imports, curtailing volumes domestically and scaling back investments in storage infrastructure. If our politicos think PSO can pick up the slack, they should look into the history of furnace oil imports and movement to get a reality check.

If fuel prices rise internationally, somebody has to pay the bill. The whole reason we are having these meetings is because the government has been picking up the tab all along, and cannot afford to do so any longer. So the job of our “subcommittees” is to find out who else can share the burden. And at some point they will have no choice but to discover that the consumer has to bear this cost, or at least a large share of this cost. What will they do then? Let’s find out!

Gas shortages

And what solutions do they think they will find to the problem of gas shortages that they were unable to see a year ago during the so-called “energy summit?” Here’s a wild guess: they’ll draw up a new priority list putting domestic consumers back at the top. You see last year they redrew the priority list to put power plants at the top, making power generation a little more possible. But now they have to choose between domestic consumers and power plants. Which do you light up? The bulbs in people’s houses or their stoves? Fridges or geysers? Can’t claim I envy the choices they have, reminds me of the guns and butter diagrams our professors used to draw on the board in Econ 101.

So here’s the point then. All these awful choices have been staring us in the face for over two years now. The reason they’re getting more and more awful is because nobody in the government was willing to make the decisions all along. If they don’t make them now, there might be no system left to elect leaders in 2013.

The writer is Editor Business and Economic policy for Express News and Express 24/7

Published in The Express Tribune, January 24^th, 2011.