THE government must be quite grateful for the opportunity to announce some measure of relief for the economically distressed citizenry ahead of the weekend by-polls in Punjab. After Chief Minister Hamza Shehbaz’s electricity subsidy was shot down by the Election Commission a week earlier as an attempt to influence the upcoming by-elections, a ‘just-in-time’ reduction in fuel prices by the federal government is what the ruling coalition needed to win some favour with the public as 20 Punjab constituencies head to polls on Sunday. The reduction in prices is not insubstantial — petrol prices have been cut by Rs18.50 per litre, while diesel prices have been slashed by Rs40.54 per litre. Prices of other petroleum products have also been reduced considerably. However, considering that petrol and diesel prices alone had risen by Rs99 and Rs132.39 per litre respectively over the past two months, it will be interesting to see just how well the general public takes this recent reduction.

The price cut has followed on the heels of the announcement that Pakistan has at long last reached a staff-level agreement with the IMF that will allow for the resumption of the loan programme and the release of $1.18bn. The deal was a hard-fought success for the incumbent government, which was forced to make a series of tough concessions to convince the IMF it was serious about fixing imbalances in the economy. For example, the government has agreed to nearly double its primary budget surplus target for the ongoing fiscal year. For that, it will need as much revenue as it can secure while also cutting expenses wherever possible. The government has committed to the IMF that it will gradually increase the petroleum levy to Rs50 per litre from the present Rs10 on petrol and Rs5 on diesel. It is also worth noting that no sales tax is being charged at the moment on petroleum products. In such a scenario, it is worth asking if it would not have been more prudent to retain the favourable differential in fuel prices as much-needed revenue, especially because tax avenues are expected to shrink as the global slowdown in economic activity starts throttling the Pakistani economy. It is understandable why the government wanted to immediately pass on the benefit of lower oil prices, but it must realise it is walking a tightrope when it comes to managing its kitty amidst an economic slowdown.

Published in Dawn, July 16th, 2022