Fuel insecurity

The Pakistani economy – and people – seems to suffer from the persistent trauma of artificially created fuel insecurity. On Monday, the government announced two decisions: gas tariffs to go up, petrol prices to go down. But dig deeper into both decisions and they reflect the same reality: the state is in a deep fiscal crisis and has no mechanism of raising revenue other than taxing the consumption of essential items. Let’s take the petrol example first. With international oil prices at a minimum, once again the government managed to spur another fuel shortage. With Ogra having recommended a price cut in petrol of between 8-12 percent, the government decided that the best course was to increase the GST on petrol and impose a Rs30,000 tax on each oil tanker to ‘make up’ for the revenue shortfall caused by the falling price of oil products. The end result was a 4-5 percent decrease in petrol prices and a strike call by the All Pakistan Oil Tankers Association. This meant that an already strained position in petrol pumps became worse with no stocks coming in until a resolution was found with APOTA late on Tuesday night. Petrol pumps in major cities, including Lahore, Karachi and Quetta, were clogged with the now familiar sight of lines of cars caused by the wrong kind of government intervention in the economy.
Some newspapers reported that the attempt to keep the petrol price stable was a product of the commitment to the IMF. Another IMF commitment was behind the decision to increase gas prices by a staggering four to 63 percent. The IMF has made bringing gas prices compatible with ‘international’ gas prices a key condition for the disbursement of the next IMF tranche of $506 million. With domestic gas production dwindling and an increased reliance on imported gas for national consumption, the government used the excuse to push gas prices up astronomically from September 1. Domestic consumers will pay between four and 13 percent more, industrial consumers will pay 23 percent more, commercial consumers will pay nine percent more while the fertilizer sector will pay 63 percent more in gas costs each month. The result is that the price of urea went up by around 100 per bag on Wednesday. The consequences will be felt by the entire agricultural economy of the country. The government estimated that the increased tax in petrol products would increase revenue by Rs12 billion while the gas rates revision would increase revenue by Rs42 billion. The trouble is that the government continues to show that it is in a deep fiscal crisis despite its tall claims of ‘macroeconomic stability’. Pakistan’s fuel insecurity is a unique one. Even the favourable circumstance of cheap crude oil causes the state and the economy to become even more insecure. When a decrease in petrol prices leads to nightmares, what can be said of the larger health of the economy? Except following the dictates of the IMF, the economic managers of the country remain largely clueless.