KARACHI: The year 2012 should be remembered as the time when economic populism in Pakistan reached the limits of its political utility.
We all knew this was coming. It is the last year of the administration of a left-leaning government. The ruling coalition is led by a political party that first vaulted into the Pakistani political stage by promising government-funded goodies to voters. The spending spree was bound to come, and come it did. The federal budget for fiscal year 2013 had already been described as the “I want a pony” spending plan. But even by its usual hopeless standards, the government appears to have outdone itself.
Politicians appear to have spent their entire annual discretionary funds budget well within the first half of the current fiscal year and have already gone back to the finance ministry – brazenly, one might add – for second helpings. The worst offender in this case appears to be the prime minister himself: Raja Pervaiz Ashraf spent an already absurdly large discretionary budget of Rs22 billion in less than four months, most of it on his home constituency, and then forced the finance ministry to fork over another Rs10 billion.
Yet, despite these large sums, nothing in the government’s entire populist spending arsenal compares to the single biggest bit of discretionary spending: electricity subsidies.
Over the past six months, the government has spent even more on electricity subsidies than the already high levels of last year. And the result has been a measurable and significant decline in circular debt, the crippling series of financial liabilities that have arisen from the government’s past inability to pay all of the subsidies that it promises. And this is likely to result in at least a temporary reduction in power outages.
The problem for politicians, however, is that while people like lower electricity tariffs, they do not thank the government – and certainly not any single politician – for it. It is difficult to raise a political slogan that says: “Electricity could have been Rs18 per unit, but we have held it to Rs10 per unit.” So while the government spent Rs472 billion on energy subsidies last year, nobody sent a thank-you note to the government for keeping electricity cheap.
If anything, the vast majority of Pakistanis are under the mistaken impression that energy in Pakistan is very expensive and overtaxed. The reality, of course, is that the government collected only Rs370 billion in taxes from the energy sector in fiscal 2012 – mostly from oil and gas – and ended up giving a net subsidy of Rs102 billion on energy.
And herein lies the government’s dilemma: its biggest giveaway to voters is something that it gets absolutely no credit for. Electricity subsidies were always an economically inefficient way to run the energy sector. It appears that they are now also politically inefficient.
And yet politicians from the ruling coalition appear to be unwilling to consider any alternatives. In their minds, while electricity subsidies may not be gaining them any votes, cutting them may well lose them an election.
Published in The Express Tribune, January 1st, 2013.
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