The relief package marks a clear shift from the fiscal reforms agenda, which may not only irk the IMF but also hurt the economy.
Prime Minister Imran Khan caught almost everyone by surprise on Monday. Amid a global crisis in the form of the Russian invasion of Ukraine that sent global markets tumbling and a political storm brewing at home, the premier announced a major cut of Rs10 in the prices of petroleum products — the single largest contributor to the country’s import bill.
The move, which left citizens stunned and economists scratching their heads, was not just limited to subsidising petroleum products.
No, the prime minister went ahead and slashed energy prices, announced tax exemptions for IT companies and freelancers associated with the sector, exemptions from capital gains tax for IT startups, skills-based internships for graduates and an increase in the stipend disbursed under the Ehsaas programme from Rs12,000 to Rs14,000. Moreover, the cut in energy and fuel prices would be sustained for the next three to four months till the next budget, he promised.
Needless to say, the move raised many an eyebrow — and for good measure too.
Where would the government get the fiscal space to cover the expenditures, pundits questioned. Had it not increased petrol prices by Rs12 just a couple of weeks ago, saying it could not afford to offer subsidies? Are these measures sustainable? What about Pakistan’s commitments to the IMF? More importantly, how would the move impact Pakistan’s economy in the long term?
Let’s try to address these questions one at a time.
A Populist move. Period.
The move, though unexpected, is not a new trick in Pakistan’s political landscape, where almost every government has attempted to check petrol prices as a shortcut to wooing the electorate every time it found itself in trouble.
In this case, however, it is all the more difficult to see economic sense in the move as the government had raised petrol prices by Rs12 just a couple of weeks ago, when the benchmark crude oil was trading at around $95 per barrel. Nothing has changed since, except that the same commodity is being traded today at $110 per barrel.
The only logical explanation one can hence arrive at is this: that the announcement is a purely populist move, designed to buy the government some political mileage as opposition parties up the ante of an impending no-confidence vote and embark on long marches.
Perhaps the biggest giveaway in this case is the timing of the move — the pressure being built up by the opposition — and perhaps the government’s own allies — combined with an increasingly restless electorate seem to have forced the government to take this route.
The saddest part is that the very people, in whose name these actions are being taken, will see little to no benefit of the reduced prices, except that they may pay slightly lower amounts for getting their vehicles’ tanks filled. The cut will not inflict any substantial dent to inflation in the medium to long term.
Petroleum and energy prices, though important, are just one contributor to inflation in Pakistan. There are many other factors, such as governance or lack thereof, supply chain issues and hoarding, which have broken the backs of the most vulnerable for the past several years.
Moreover, once the prices of commodities go up, they are hardly ever seen to drop with a cut in petrol prices — at least not by any significant measure. For example, how many times have you seen a major cut in bus fares or product prices, even when the prices of petroleum products have been decreased? In fact, rarely is the benefit of a decrease in commodity prices passed on to the end consumer.
What the public will undoubtedly feel, however, is the pinch of inflationary pressures on commodity prices as a result of the fiscal deficit created by these populist measures. The government’s own estimates to finance this cut seem to ignore the rising trend of crude oil prices and their impact over the next three to four months. Freezing the prices at the current level till the next budget at a time when global oil prices are on an exceptional surge will leave an unbearable dent on the fiscal deficit.
The IMF conundrum
While the cut in petrol and energy prices were immediately implemented, the other measures announced by the prime minister in his address may take more time or may not even see the light of day until after the next budget. The process of designing and implementing these reforms — other than Ehsaas transfers — may take another two to three months, when it is time for the next budget. The announcement, however, will be enough to create some goodwill on its face value and buy the government some time.
And while it may yet be able to finance the cut in petrol prices — estimated at approximately Rs60 billion for the next four months — it would be hard put to both find the resources to implement the other measures and also explain its position to the International Monetary Fund (IMF), which finally released the sixth $1 billion tranche under its Extended Fund Facility after months of deliberations and only after Pakistan agreed to some very tough conditions, including the mini-budget.
While there are reports that the government is hoping to finance this Rs250-300 billion package from cuts in expenditure, and not by borrowing, one is hard-pressed to understand why these possible avenues were not utilised when the mini-budget was presented. What has changed that these avenues are suddenly now available?
If indeed the government does push on for the implementation of all the measures announced by the premier, it would not only be reneging on its commitments to the IMF, specifically in relation to fiscal reforms and pricing in the energy sector, but also jeopardising the seventh review by the Fund.
Not only will this hurt the government’s credibility, any form of derailment from the IMF programme will have an adverse effect on the exchange rate as well as the foreign exchange reserves, further elevating the inflationary pressure. This in turn can have wide ranging medium to long term consequences for the economy. The market is already exhibiting fears around this scenario.
Moreover, if the government does go ahead with the measures, it will also hurt its standing with other development partners such as the Asian Development Bank and the World Bank, who may stop their support in light of the country’s reversal on its reforms agenda. We had, in fact, seen a glimpse of this last year as the IMF was conducting the sixth review, when all other development partners were waiting for it to finish before extending support.
What is most unfortunate in this whole scenario is that despite the months of pain and suffering, taking tough decisions that caused the economy to contract even before Covid-19 struck and introducing a tough mini-budget, Pakistan would not be able to complete its reforms agenda simply because politics trumped basic economic sense.
SC to hear reference against Zulfikar Ali Bhutto death sentence next week
- Nine-member bench, headed by CJP, to hear reference.
- Last hearing of reference was held on Nov 11, 2022.
- SC to also hear IHC ex-judge Shaukat Siddiqui plea on removal.
ISLAMABAD: The Supreme Court is set to take up the 12-year-old presidential reference on revisiting the controversial death sentence awarded to former prime minister Zulfikar Ali Bhutto next week, The News reported Friday.
A nine-member larger bench of the Supreme Court, headed by Chief Justice of Pakistan Qazi Faez Isa, will hear the presidential reference on reconsideration of Bhutto’s death sentence judgment on December 12.
The decision to fix the instant case was made under Section 2(1) of the Supreme Court (Practice and Procedure) Act, 2023, by a three-member committee comprising CJP Isa, Justice Sardar Tariq Masood and Justice Ijazul Ahsan.
According to Supreme Court Registrar Jazeela Aslam, the other members of the larger bench are Justice Masood, Justice Mansoor Ali Shah, Justice Yahya Afridi, Justice Aminud Din Khan, Justice Jamal Khan Mandokhail, Justice Muhammad Ali Mazhar, Justice Syed Hasan Azhar Rizvi, and Justice Musarrat Hilali.
It is pertinent to mention that former president Asif Ali Zardari, on April 2, 2011, had approached the apex court through a presidential reference under Article 186 of the Constitution to seek its opinion on revisiting the trial of Pakistan Peoples Party (PPP) founder Zulfikar Ali Bhutto. The last hearing of the reference was held on November 11, 2022.
Earlier, an 11-member larger bench of the apex court, headed by former chief justice Iftikhar Muhammad Chaudhry, had conducted five hearings in the presidential reference.
Babar Awan, the then federal law minister in the PPP regime, had earlier appeared as the federal government’s lawyer in the case and presented lengthy arguments. However, on January 17, 2012, Awan’s law practice license was suspended for criticising the court’s order in the Memogate case. Later, the case was adjourned due to a change of counsel who were appearing in the instant reference.
Meanwhile, the Supreme Court has also fixed the petition of sacked Islamabad High Court (IHC) Judge Shaukat Siddiqui challenging his removal for misconduct on December 14.
ECP expected to announce election schedule on December 14
- ECP has published final list of delimitations.
- CEC says ECP aware of its duties regarding polls.
- Calls on public to participate in elections.
ISLAMABAD: Amid heightened political temperature in the country, the Election Commission of Pakistan (ECP) is expected to announce the schedule for much-awaited general elections on December 14, The News reported Friday.
Political parties are busy in electioneering and political wheeling and dealing to strengthen their position in the polls which are slated to take place on February 8 next year.
The electoral body recently published the final list of delimitations clearing a major hurdle to the announcement of the polls. It is in the final phase of appointment of district returning officers, returning officers and assistant officers as per the provisions of the Elections Act, 2017.
According to Sections 50 and 51 of the Elections Act, a district returning officer is appointed for each district or a specified area and a returning officer for each constituency for elections to an assembly.
The provincial election commissioners as well as the Election Commission Secretariat have furnished lists of government officers for the election duty. Their appointment will follow the election-related training.
Separately, in a message on the occasion of National Voters Day, Chief Election Commissioner Sikandar Sultan Raja said the printing and delivery of the final electoral rolls had been completed successfully. He said the ECP was fully cognisant of all its constitutional and legal responsibilities regarding elections and related matters.
CEC Raja also referred to the Election Commission’s full preparedness and commitment and assured the voters of complete security, privacy and transparency throughout the election process. The chief election commissioner called on the public to participate in the polls to shape their bright future.
The Finance Division on Tuesday released Rs17.4 billion to the ECP for poll arrangements, putting to rest election delay rumours.
Last week, the ECP also notified the final list of delimitation of constituencies of the national and four provincial assemblies, paving the way for the announcement of the election schedule.
The CEC also reiterated that elections will take place at its scheduled time and maintained that the commission will ensure complete security during the polls.
He also urged the people to use their right to vote for the “bright future of the country and nation” and cooperate with the ECP to ensure peaceful elections.
Raja also reminded the people that they have “power of vote,” asking them to cast their ballot while keeping in view the future of their children.
National Voters Day is observed each year on December 7 to create awareness among the masses about the importance of vote registration and encourage the electorates to use the power of the ballot to elect their representatives.
Zardari ropes in Balochistan electables as electioneering gears up
- Former minister Sikandar Imrani among others join PPP.
- Zardari welcomes Balochistan leaders into party’s fold.
- Development comes amid heightened political activities.
Several electables from Balochistan including former chief minister and Balochistan Awami Party (BAP) leader Abdul Qudous Bizenjo joined the Pakistan Peoples Party (PPP) in the run-up to the February 8 elections.
The development came in a meeting with PPP Co-chairman Asif Ali Zardari in Lahore on Thursday, according to a statement issued on the party’s social media channel on Thursday.
During the meeting, former Balochistan minister Sikandar Imrani, Syed Nizamuddin, Syed Hameed, Naseer Ahmed Bizenjo and Mir Abdul Wahab Bizenjo also joined the PPP.
Zardari welcomed them into the party folds.
The development comes amid heightened political temperature in the country with political parties busy in electioneering and political wheeling and dealing to strengthen their position in the elections slated to take place on February 8, 2023.
Last month, Pakistan Muslim League-Nawaz (PML-N) supremo Nawaz Sharif succeeded in wooing at least two dozen prominent politicians from Balochistan into the party ranks.
The electables included Jam Kamal Khan, Mir Saleem Khosa, Noor Mohammad, Baba Buledi, Sardar Masood Luni, Rubaba Buledi, Sardar Abdul Rehman Khetran, Shoaib Nosherwani, Ramin Jan Muhammad Hassni and Muhammad Khan Lehri joined the PML-N ranks.
PPP leaders Saeedul Hassan Mandokhail, Sardar Fateh Muhammad, and Faiq Jamali jumped ship to join the PML-N.
From the National Party, Mujib Mohammad Hassni and former senator Dr Ashok Kumar, while Zeenat Shahwani of BNP-M and PTI’s Muhammad Jamali and Sardar Atif Sanjrani also joined the PML-N.