As would be expected, Monday’s hike in the pump price of motor spirit has not gone down well with the populace. There is fire and fury over social media, with many of the government’s loyalists joining in the action, bashing Finance Minister Miftah Ismail over the development. Maryam Nawaz Sharif, seen as a mouthpiece of her father, deemed it fit to pour oil over the fire by distancing the party supremo from the decision, leaving Prime Minister Shehbaz Sharif and his cabinet to take all the heat. The chattering classes were particularly miffed over the development because of an expectation ahead of the move that prices would be cut. No doubt misplaced, the expectation arose from a suboptimal media interaction by none other than the finance minister on the eve of the hike. It would seem the media misconstrued his careless words to report that prices were about to be cut. Once word got out, the finance ministry was left in an awkward position because issuing a clarification would have meant giving the markets a clue the prices were going up, creating a temporary supply crisis.
In any case, while his media game leaves a lot to be desired, the policy position taken by Miftah Ismail is unimpeachable. There is a time lag between the acquisition of fuel stocks and retail sales at the pump. The rupee has no doubt gained a lot of ground over the last couple of weeks against the dollar, but this appreciation cannot be used to offset the unenviable exchange rate parity at the time the LCs were opened to purchase the stocks now coming on tap. The government has absolutely no fiscal space to absorb that differential. What is more, it has a firm compact with the IMF not to allow any unbudgeted subsidies. Nor would it be prudent to use hard currency loans secured from friendly countries on commercial rates – like the $3 billion Saudi deposit expected to be rolled over soon – to fund a fuel subsidy. By not pandering to the electorate, the government has demonstrated that it views its compact with the IMF as a policy imperative necessary to ensure the health of the country’s economy. On the other hand, the government has slow-walked the rollout of a federal levy on petroleum products, maintaining it at Rs10 a litre as against the planned quantum of Rs50. This reflects its sensitivity to the people’s plight – and its ability to strike a balance between political expediency and economic practicality.
At another level, the move to hike petrol price despite stiff opposition from party figurehead Nawaz Sharif is a dead giveaway of the government’s autonomy vis-a-vis the elder Sharif and his close aides. There has been a lot of speculation over the last few months as to how much Prime Minister Sharif is beholden to his London-based elder brother. While Ms Maryam Nawaz was probably playing to the gallery to win favour with the electorate when she told social media how her father stormed out of the meeting over the decision to increase petrol price, she ended up confirming that this is not a fly-by-wire cabinet of her father. The elder Sharif may have considerable clout in party matters and that is fine, but when it comes to hard decisions concerning the running of the county, Prime Minister Shehbaz Sharif and his cabinet have the final word. That is how it should be. Keeping fossil fuel prices linked with international prices has also had the desirable impact of dampening demand at the pump, helping Pakistan save precious foreign exchange at a crucial time. This is precisely the policy posture necessitated by the IMF-sponsored economic reform programme. Here's hoping the Fund’s executive board, due to meet in a week or so, has no problem greenlighting the restoration of the Extended Fund Facility (EFF) Pakistan needs to keep its head above water.