Thursday July 07, 2022

Continuing oil subsidy wrong: experts

By News Desk
May 16, 2022

ISLAMABAD: Leading economists and businesspersons believe the government’s decision of continuing fuel subsidy is wrong as it would increase inflation.They were speaking in Geo News programme, Naya Pakistan, hosted by Shehzad Iqbal who arranged a panel discussion on Sunday.

The panel included industrialist Arif Habib, economists Dr Akbar Zaidi, Yusuf Nazar, Muhammad Suhail, Dr Khaqan Najeeb, and Abid Suleri. The anchor asked them following three questions: 1) Is government’s decision of not increasing petrol prices right and what steps should government take to counter the inflation in the wake of abolishing the subsidy? 2) What measures should be taken to release pressure on the external account, and how to stop depletion of foreign exchange (forex) reserves? 3) Is bankruptcy threat real, and what steps should be taken to handle this crisis?

On government’s decision of not increasing petrol prices and what steps should government take to counter the inflation in the wake of abolishing the subsidy, all six experts dismissed the government’s decision of not increasing the prices as wrong.

Arif Habib said that regardless of IMF pressure, the decision is wrong for government’s own finances. He said that the government may take decision on (reducing) its taxes and levies but the burden, though minimum, must be passed on to people.

Dr Akbar Zaidi also rejected the government’s decision, saying it is a political decision.Yusuf Nazar said the decision is wrong politically as well economically. He said the inflation as a result of not raising fuel prices would be greater as rupee would depreciate further against dollar. Muhammad Suhail said the decisions of maintaining the subsidy and reducing the fuel prices were wrong. Khaqan Najeeb said the government should have decided about abolishing the subsidy on April 15 while going for the targeted subsidy.

Majority of the experts dismissed the bankruptcy threat. Arif Habib said Pakistan had had staged comeback when the forex reserves had fallen to $400 million.While Yusuf Nazar termed the situation grave given Pakistan’s sour relations with the US and rising oil prices in the international market, Dr Akbar Zaidi ruled out Pakistan going bankrupt as it is not Sri Lanka or Lebanon. He said Pakistan staged a comeback when the economic situation was critical in the wake nuclear explosions. He said who would negotiate the deal with the IMF - the sitting government, the caretakers or government after the elections - should be clarified.

Dr Khaqan najeeb also ruled out bankruptcy. He advised the government to give the market clarity, do its homework and engage the IMF board members in diplomacy.Dr Abid Suleri said the bankruptcy was not a threat, and advised the government to work on macroeconomics.

Muhammad Suhail said that if the present situation persists and the government does not take hard decision, Pakistan could go the bankrupt.

On the question of handling inflation if the subsidy is withdrawn, Dr Najeeb suggested the government introduce targeted subsidy based national socioeconomic survey and the Nadradata.

Abid Suleri also talked about the targeted subsidy and said the previsous government had been given a practicable plan under which the deserving people were to be paid directly because running two prices at filing stations is impossible.

On forex reserves and external account, Arif Habiib said Pakistan would have to contain imports and strike a better deal with the IMF. He also suggesting handing over the public sector development to the private sector and let it arrange dollars for its imports itself.

Yusuf Nazar advised abolition of invisible subsidies. He said the fertliser sector is getting billions of rupees subsidy but it doesn’t reach farmers. He suggested abolition of all such subsidies.

In response, Arif Habib said the subsidy was benefitting farmers as the fertilizer bag selling Rs7,500 in international market is available in Pakistan at Rs1,900.Dr Akbar Zaid suggested the government declare economic emergency and reduce the public sector development programme.

Dr Khaqan Najeeb proposed cut in imports, work on load management and cheaper sources of energy instead of import of costly LNG, and abolition of tax amnesty.

Muhammad Suhail also proposed reduction in imports. He said attractive schemes should be launched to bring $6 billion deposits in forex accounts into the State Bank reserves.Abid Suleri said political uncertainty should end and work on basic issues should start. He said the friendly countries and the IMF should know for how long the government would stay.

The coalition government led by the PMLN is shying away from taking hard decisions and has upheld the subsidy given by the Imran Khan government. Though the PMLN was critical of petrol subsidy given by the previous government, it is reluctant to withdraw it.