Fuel, Feebleness, and Fear

Leadership crisis in crisis leadership.

In the wake of the noise regarding the no-confidence motion (NCM) against the Imran Khan-led Pakistan Tehreek-i-Insaf (PTI) government, the Kaptaan made a seemingly populist move - imposing fuel and power subsidies. While this news came as a breath of fresh air for the inflation-stricken masses, it angered the IMF. The latter is a strong opponent of subsidies and deems them a gimmick that "caters more to the rich class than the poor class" - a statement also put forward by Finance Minister Miftah Ismail, who proposed targeted subsidy for bikers.

On a side note, some people attribute the fall in foreign exchange reserves to the fuel subsidy. Instead, shares of provinces and dividends of state-owned enterprises (SOEs) are funding the fuel subsidy.

However, Miftah Ismail does not seem on the same page as Prime Minister Shehbaz Sharif. Despite the "regressive" fuel subsidy, fuel prices remain unchanged, with Shehbaz Sharif rejecting Oil and Gas Regulatory Authority's (OGRA) summary. The price level will remain the same till May 15, 2022. As per Information Minister Marriyum Aurangzeb:

"Former prime minister [...] had accepted harsh conditions set by the International Monetary Fund [...] increasing prices of the petroleum products to secure a loan from the IMF."

For the context, she referred to the Fund's condition accepted by the then Finance Minister Shaukat Tarin. In its sixth review, the Fund imposed the conditionality of jacking up the petroleum development levy (PDL) to PKR 30 per liter. However, Shaukat Tarin blatantly negated any such "assurance."

Photo Source: IMF’s Sixth Review

While the imposition of the Fund's conditionality is on the record, it was needless to reminisce it when economists think removing subsidies and raising prices is overdue. It gives off the fact the government is hesitant to increase petroleum prices. A significant chunk of the country's population possesses little to no confidence in the coalition government that presented the no-confidence motion against Imran Khan, hence the hesitation. One word, ironic. 

The future of the fuel subsidy is both definite and uncertain at the same time. Relief measures do not last forever, not even a lifetime. However, when will the fuel subsidy be removed (or slashed) remains a question with speculative answers. Another definite element is the outcome of removal - increased inflation.