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STRANGE things are happening. The government appears to be struggling to strike the right balance between satisfying the IMF that its reform programme remains on track, as well as doling out goodies to the people in an attempt to buy loyalties.
So power tariffs are up when Nepra, the power regulator, says they should come down. Wheat support price is up when the Economic Coordination Committee had decided in May to keep it unchanged. Oil prices are down, with an accompanying statement telling us that the prime minister himself wanted to help us poor mortals in our hour of need, while margins for oil dealers are up in the same announcement. And now we’re hearing of a massive increase in gas prices, though this has yet to be confirmed.
What’s going on? How come all of a sudden we’re seeing such important adjustments being made in various administered prices, each coming one after another? Clearly, the government is trying to placate a population it thinks has been whipped up into an indignant frenzy by Imran Khan, as well as salvaging its credibility before the Fund.
Consider the power tariffs for one — long considered the third rail of Pakistani politics. What’s not helping is the confusion in the media about what exactly is going on. There are three different heads in the power tariff where adjustments are being made: the base tariff itself, the fuel adjustment surcharge and what they’re calling an equalisation surcharge. So the media reports that the tariff has been increased, then decreased again.
How come all of a sudden we’re seeing such important adjustments being made in various administered prices?
Subsequently, we learn that the increase was an adjustment in the base tariff, but the decrease was in the fuel adjustment surcharge. The latter is reviewed regularly, whereas the former, once set, requires a lengthy procedure to undo. The idea being that the government can increase the tariff today and decrease the fuel adjustment surcharge in the same amount, so consumers will not see a higher bill.
Once the higher tariff is set, then the fuel adjustment surcharge is increased a month later, with the plea that international fuel prices have gone up and fuel prices are a pass-through item.
By now there is ample confusion in the public’s mind about what exactly is happening with the tariff, and this confusion is there in the media too, giving the government enough room to release misleading statements, saying, for instance, that the recent tariff increases have been withdrawn, when in effect the so-called withdrawal has actually been effected through the fuel adjustment mechanism.
Coming on the heels of the overbilling scandal, which is still ongoing, some of the reasons for this reticence can be understood. But even in the overbilling story, there is a state of managed confusion. Thus far, though, it looks more like the government is frantically searching for a way to diffuse blame, and still see a tariff increase through. There is a clear fear of tightening the screws on the power bureaucracy, and this fear runs across various governments. I’m not sure where exactly this fear comes from, but I have some theories. Another time!
Likewise with the wheat support price. The government had decided in May to not increase it, but just announced an increase along with the imposition of a regulatory duty on wheat imports. Fair enough, I have enough sympathy with the grower to know that protecting their incomes is necessary for any democratic government, even if it means administering higher inflation to the urban consumer.
What is being muddied, however, is the reason behind the fairly rapid change of mind. The sowing season is upon us, and if an increase in the support price was merited according to the economic circumstances, the least the government could do was to spell them out.
But again the government is being coy about the facts that lead to this important decision, giving rise to speculation that the decision is politically motivated, especially since a large share of the support price funds are utilised in southern Punjab, where the government is seeking to shore up its base in the wake of the last by-election in Multan.
This sort of thing is happening with increasing frequency now. What are we supposed to make out of these adjustments that appear to defy economic logic? If the purpose is to adjust government expenditures to meet a tight fiscal situation, then it doesn’t make sense that adjustments are going in both directions. It also doesn’t make sense that misleading information is being released to justify the adjustments if they are indeed justified by the economic circumstances.
The best explanation we have is that the government is trying to shore up its position with the IMF while at the same time trying to purchase political support. If so, it means they are in a very difficult situation, indeed, and the protests have succeeded in putting them on the defensive in very important matters.
It also means the traditionally easy treatment that Pakistan has enjoyed at the hands of the Fund is approaching a limit, and the government is being forced to bend in awkward positions to meet its commitments.
Consider as an example the recent news story that a substantial tax exemption was being contemplated for industrial units in Khyber Pakhtunkhwa. The IMF tweeted the story out, calling the proposed exemptions “a terrible idea”. So public a display of its sentiments, in the run-up to the rescheduled meetings in Dubai, is a little unusual, although not unprecedented. I’ll bet the government dropped the idea. And let’s face it, it was indeed a terrible idea.
The fiscal framework now seems to be driven by some fairly haphazard impulses. This does not bode well for economic management for the remainder of the fiscal year. It’s important the government either find its feet, or its tongue, whichever comes first I suppose.
The writer is a member of staff.
Published in Dawn, November 6th , 2014
