Pakistan: Like Minister, Prime Minister also lacks rational thinking

Yesterday, I posted a blog; its title was How can Finance Minister sound so dumb? My heart was even heavier to read the news today, “Prime Minister Shehbaz announces Rs28 billion relief package to mitigate impact of fuel price hike”.

I have all the reasons to believe that the prime minister is not fully aware of nitty-gritty of managing economy of Pakistan. However, he has a team of ‘economic experts’, which is fully aware of the targets agreed with the International Monetary Fund (IMF) and prevailing state of the affairs.

Having gone through the details I arrived at the conclusion that the prime minister is either stubborn or does not listen to what is being advised by the experts.

Reportedly, on Friday, Prime Minister Shehbaz Sharif announced his government would launch a new relief package of Rs28 billion per month to protect the poor from the burden of petrol and diesel price hike.

Any government has a right to pay subsidy provided it has enough money in its kitty. Pakistan already faced huge budget deficit, therefore, it can’t afford to pay untargeted subsidies.

Prime minister said under the relief package, the premier said, 14 million poor families, comprising 85 million people, would be given Rs2000 per family. I am surprised to read his statement as he is creating a new breed of baggers. He is also opening floodgates of corruption.

He said this was in addition to the monetary assistance being given to them under the Benazir Income Support Program. This relief package will be added in the next budget, the premier said.

Prime minister hasn’t come out of the shadow of Imran Khan. In his first address to the nation — a day after his government removed fuel subsidies and increased the price of petrol by Rs30, he made two points: 1) it was because of the previous government  2) he had to take the difficult decision with a heavy heart.

He termed the PTI government's decision to grant fuel subsidy a trap for the upcoming government. "Petroleum prices are increasing worldwide but they (PTI government) subsidized fuel despite knowing that the treasury cannot bear its burden."

The hike in petroleum prices is a universal phenomenon and Khan can’t be blamed for this. The added insult is huge depreciation of Pak rupee. This depreciation was mostly because of failure of the incumbent government to revive relationship with IMF.

This is also to remind the prime minister that his government is yet to announce increase in electricity and gas tariffs. Would he further increase the subsidy?

In my opinion, much of the burden of common man would be reduced if government orders 50% reduction in the remunerations of MPAs, MNAs, Senators and Ministers.  Similarly ‘fuel’ allocations should also be reduced to half.

If common man is required to pay higher prices of petroleum products, electricity and gas why perks of elected representatives can’t be reduced to half?

 

 

 

Pakistan-IMF discussions remain inconclusive

In the simplest words, Pakistan-IMF discussions held in Doha remained inconclusive. The International Monetary Fund (IMF) on Wednesday emphasized upon Pakistan the urgency of removing fuel and energy subsidies to achieve program objectives.

The incumbent government does not seem ready to withdraw subsidies.

According to the IMF, the mission held highly constructive discussions with the Pakistani authorities to reach an agreement on policies and reforms that would lead to the conclusion of the pending seventh review of the authorities’ reform program.

It said the considerable progress was made during the discussions, including on the need to continue to address high inflation and the elevated fiscal and current account deficits, while ensuring adequate protection for the most vulnerable.

"In this regard, the further increase in policy rates implemented on May 23, 2022 was a welcome step. On the fiscal side, there have been deviations from the policies agreed upon in the last review, partly reflecting the fuel and power subsidies announced by the authorities in February this year."

Meanwhile, Foreign Minister Bilawal Bhutto-Zardari said the ongoing bailout deal between Pakistan and the IMF was "outdated" given a number of global crises.

"This IMF deal is not based on ground realities, and the context has absolutely changed from the time that this deal was negotiated," Bilawal told Reuters on the sidelines of the World Economic Forum.

"This deal is a pre-Covid deal. It is a pre-Afghanistan fallout deal. It is a pre-Ukrainian crisis deal. It is a pre-inflation deal," said Bilawal.

Terming the deal "outdated" he said it would be unfair and unrealistic to expect a developing country like Pakistan to navigate geopolitical issues under the current agreements.

"We have to engage with the IMF and we have to keep Pakistan's word to the international community ... However, going forward, it is very legitimate for Pakistan to plead its case," Bilawal said.

The newly-elected government began talks with the Fund a week ago over the release of a US$ one billion tranche under an Extended Fund Facility, a process slowed by concerns about the pace of economic reforms in the country.

A US$6 billion IMF bailout package signed in 2019 has never been fully implemented because the government reneged on agreements to cut or end some subsidies and to improve revenue and tax collection.

Over the past weeks as the government has failed to take decisive economic decisions, most prominent being reversal of fuel subsidies.

Analysts and experts have linked the economic pressure to uncertainty over the continuation of the IMF loan program coupled with a rising oil import bill and widening trade deficit.

In recent meetings with Pakistan, the IMF linked the continuation of its loan program with the reversal of fuel subsidies, which were introduced by the previous government. However, Prime Minister Shehbaz Sharif has multiple times rejected summaries by the Oil and Gas Regulatory Authority and the finance ministry to increase fuel prices.

The PTI had announced a four-month freeze until June 30, 2022 on petrol and electricity prices in February this year as part of a series of measures to bring relief to the public.

PML-N and other political parties, part of the new coalition government were critical of Imran Khan's government for derailing the IMF program through unfunded fuel subsidies, but despite being in power for nearly six weeks, have not reversed these subsidies.