Populist decision-making

Government has been making economically unwise decisions like subsidising power, removing NTN to buy a car and so on.

The government recently announced what would have been its last upward revision of the prices of petroleum products. It then withdrew the decision within 24 hours as it drew a harsh reaction from across the political spectrum and from consumers. It is hard to decide what is more condemnable. The act of increasing prices when international oil prices have been on a bit of a downswing, or the second act, which reeks of populist apathy, something that has been the hallmark of most political governments — this one more so than ever — and has led the country to the brink of fiscal collapse.

It is election year after all. The government has made many other populist decisions like removing the requirement of having a national tax number to buy a car, which will probably be a boon for the powerful local car assemblers. On the other hand, the government is desperately short on liquidity. The FBR is not confident it will meet the revenue target. Foreign direct investment has dried up and we are looking at a scenario where it could hit a 10-year low.

The government has been making economically unwise decisions — like continuing to subsidise power — for the past five years. It is now feeling the pinch of such generosity. This theory is lent credence by another recent decision, in which it decided to withdraw tax exemptions, extended to five influential sectors. The five sectors are jute, carpets, leather, sports and surgical goods. The move is aimed at raising roughly Rs25 billion in additional taxes by June this year. It’s a tough call — appease the voters or appease party members — who are clamouring for more funds as their tenure ends. Elections are an expensive business. Substantial amounts have been diverted from development schemes to the constituencies of parliamentarians who have the ear of the prime minister or the president or other influential members of the cabinet. This money has to come from somewhere.

Published in The Express Tribune, March 5^th, 2013.