Considering his leeway he is likely to make some populist decisions which could further widen the already wide breach between the Government of Pakistan (GoP) and the lender of last resort, International Monetary Fund (IMF).
Since revision of petroleum prices was due on April 15, 2022, Oil and Gas regulatory Authority (OGRA) had recommended a substantial increase in the prices of petroleum products for recovering the full import cost and exchange rate losses from consumers.
According to the estimates of the regulator, the GoP was required to raise petrol prices by Rs21.30 a litre and diesel by above Rs83 a litre in order to recover the full costs. In case it also wants to recover the sales tax and the petroleum development levy on these products, Ogra has proposed a hike of Rs53.30 in petrol and up to Rs120 in diesel prices.
Who would intentionally opt to step on this landmine that PML-N leader Miftah Ismail referred to in his press conference earlier this week? Certainly not a new coalition that, though faced with an enormous economic crisis, has to contend with a formidable political foe. The big question now is: for how long can Prime Minister Shehbaz Sharif delay defusing the landmine, which his predecessor left for him, by freezing petroleum and electricity rates for four months?
He can’t afford to wait for too long, and would need to start deactivating it, even if gradually — unless he wants to allow a bloating budget deficit to spiral out of control by the end of the current financial year.
Thus, the decision to not hike petroleum prices at all is an ill-advised one.
Pakistan is facing a dire economic crisis and populist policies made under political pressure are certainly not going to help anyone in the long run — least of all the people benefiting from them.
At the end of the day, the beneficiaries always end up paying back such subsidies in a harder way through more indirect levies or higher taxes and heavy cuts in public sector spending on essential services, such as education, water supply and healthcare.
The gravity of the looming economic crisis demands that the new government take prudent, forward-looking policy decisions to put the country back on the trajectory of sustainable growth, even it wants to tread cautiously. However, the Shehbaz Sharif government does not have the option of letting things remain as they are or keep delaying tough decisions. If Sharif continues with populist policies for fear of a backlash from the opposition PTI, he would leave the economy in far more dire straits than he inherited.
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