The heading is irresistible: “Government drops another petrol bomb”, equating it with the terrorists who kill the common man in Pakistan; or “New Year gift of the government to the people”, etc. This would happen anywhere in the world because governments have to bear the consequences of an economy that is not doing well and is highly dependent on imported oil for its industrial and commercial needs. US President Barack Obama is unpopular today and might lose his second term because of the economy left behind by an earlier president and the banking collapse caused by one of capitalism’s cyclical crises.
The Oil and Gas Regulatory Authority (Ogra) — whose name is frightening in itself — announced that it was raising the prices of petroleum products up by nearly Rs8 per litre (in the case of petrol used by cars). A spokesman for Ogra explained that the government was simply passing on the new price of crude oil in the Arab Gulf market which had surged by nearly 12 per cent. The ‘New Year gift’ should have been described as coming from a ‘friendly’ Gulf country but that is not how the politics of price hikes unfolds.
Was it wrong to pass on the cost of an imported item? If everyone is agreed that it was wrong, then the matter is closed and all the nearly abusive comment issuing from political quarters, including our clueless clergy, is justified. But if you think that it was right to keep the prices realistic, then one must think of describing the latest rise in more rational terms. Was Musharraf right in holding on to old oil prices when the global spiral began in 2007? He thought he could open the floodgates of new international prices after winning the 2008 elections. His calculation was wrong. What we got, as he rode into the sunset, was a whopping circular debt overhang of nearly Rs400 billion.
We would be right in thinking that not passing on the price means giving subsidy to all and sundry to enable them to squander an expensive resource. Hence, Ogra’s latest act should be seen in the light of a correction of past policies which caused bankruptcy in all sectors connected with refining and distributing imported oil. One of the reasons why we are on life support with the IMF is what was done, not by the present government, but by the Musharraf regime. The IMF whose last tranche has been withheld because Pakistan is not able to enforce the reformed general sales tax (RGST) says Pakistan is endangered by a deficit that will bring in hefty inflation. But what we are focusing on is inflation caused by the new oil price.
Who is right? The IMF pointing to our rising deficit or our newspapers shouting inflation after the oil hike? Of course, rise in cost will increase prices, but would that be the same as inflation emanating from a deficit? The cost-related inflation — even when it is across the board as in the case of oil — still gives the consumer an option to abstain. But inflation coming out of subsidy and money-printing, hits the poor directly and gives them no options at all. The IMF has warned Pakistan that its deficit is rising dangerously. The government, not able to levy direct taxes for traditional and political reasons, has borrowed Rs 1,500 billion from the State Bank (and it’s own revenue estimate is Rs700 billion). This is a recipe for hyperinflation which will translate into paying Rs100 for a box of matches.
From Ahsan Iqbal of the PML-N, to Imran Khan, the critics are acidic without being assiduous in their grasp of the economy. Corruption is a long-term disease and if it could sink a state it would have put paid to India long time ago. But with the Indian economy growing at the rate of eight per cent, corruption does little harm. Pakistan’s problem is its sinking economy and for that there are many reasons, including terrorism and extremism, the last attribute causing the country’s powerful and weaponised clergy to exhibit a wrath against the possible reform of the blasphemy law that will only harm Pakistan. As a kind of rebuke, the same night, the youth in big cities is doing cartwheels on the roads welcoming the New Year.
Published in The Express Tribune, January 2nd, 2011.