The beleaguered government of Shehbaz Sharif mustered courage to reorient the economy and raised the prices of various petroleum products by Rs30 per liter each. Though it was an unpopular decision carrying a political cost, it was indispensable for striking a deal with the IMF. The raise constitutes almost one-fourth hike in existing prices, and the retail price of petrol is now Rs179.88 per liter. The coalition government now expects a fair deal from the international lender as it looks forward to revival of the $6 billion loan programme. The Fund had termed the subsidy on fuel and electricity doled out by the previous government as fiscally unviable and in transgression to the existing accord. Now with the bitter pill down the throat, the government will have to choreograph its economic priorities, and ensure that the upcoming budget is sustainable.
The government took almost six weeks to take the difficult decision as its immediate impact is set to raise inflation, which is already at 13.4% in April. Notwithstanding public ire, the decision has seen dividends as the rupee snapped its losing streak against the dollar and gained Rs2.50 in interbank trade on Friday. Likewise, the bourses picked up momentum after weeks of dismal performance, as the KSE-100 index soared by 900 points in morning. Yet economic pundits are keeping their fingers crossed anticipating a rising import bill and widening current account deficit, as forex reserves take a nosedive.
The coalition government had a bitter choice to make by either slashing the subsidy on energy or letting the rupee plunge to sea-bottom. The expected $1 billion tranche from the IMF wasn’t forthcoming until the rollback was done, as even the friendly states preferred the deal to be endorsed before putting in their pie. It is laudable that the country was, at least, saved from an imminent default. It is now certain that apart from funneling in around $900 million, the IMF will give a nod to financial assistance from other multilateral lenders. This engineered lifeline, nonetheless, will be highly contested on the political front. One hopes putting the economy back on track by ensuring corrective measures will supersede political considerations.
Published in The Express Tribune, May 28th, 2022.
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