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The increasing demand for oil and its high taxation is leaving the common man stripped of his income and making the lives of the poor even more miserable than before, but despite all of this, it is bringing super-duper profits and trillions in revenue to the government for the oil companies. — Rana Bhagwanda’s commission report Filed in the Supreme Court of Pakistan on 2009 Oil Prices
The poor economic performance of the Pakistani coalition government Tehreek-e-Insaf (PTI) adds misery to the life of the common man, and their pursuit of a life with access and affordability for essentials is becoming increasingly difficult. All this shouting falls on deaf ears, as the Goebbels of the government are busy blowing trumpets over their so-called economic output. The tightening of fiscal policy and rising inflation due to rising utility prices, tax rationalization, measures to reduce the primary balance and exchange rate adjustments are, along with higher oil prices, the main challenges for the Pakistani economy.
The actual situation is very different from what the PTI government claims. The rate of inflation in recent years has been unprecedented and the country has rarely seen such a sharp rise in the prices of everyday items. The main reason for this inflationary trend is poor planning, a lack of decision-making capacity and below-average administrative controls. According to the latest publication by the Pakistan Bureau of Statistics (PBS), the Sensitive Price Index (SPI) has averaged between 18% and 20% for the past five months! It is an undisputed fact that the people of Pakistan experience the highest fuel prices, the highest utility prices, and the record prices for basic commodities in Pakistan’s history.
The mistake of making recent liquefied natural gas (LNG) purchases is a classic example of the government’s incompetence and indecision. In August 2021, state-owned Pakistan State Oil (PSO) bought a cargo of LNG for $ 20.055 per unit (nearly 27.54 percent Brent) in what is considered the world’s second highest summer purchase. In comparison, the government of the Pakistani Muslim League has Nawaz [PML-N] had a long-term supply deal with Qatar for 13.37% of Brent. Earlier this month, a news agency reported that the PTI government has not received an offer against tenders for the supply of LNG cargoes for delivery from December 2021 to January 2022. This situation has sounded the alarm among private and commercial users as the gas supply crisis in winter can reach critical values.
Electricity tariffs are often revised northwards due to constant pressure from the International Monetary Fund (IMF); even more is expected in the coming months. The recently released energy status report from the National Electric Power Regulatory Authority (NEPRA) indicates inefficient government decision-making. It says:
“In FY 2020-21, the electricity sector witnessed the underutilization of the most efficient RLNG power plants and some other cost-efficient power plants. An underutilization of these power plants, ie the operation of these power plants in partial load operation, on the one hand reduces their efficiency and increases their energy purchase price (EPP), on the other hand the unused power increases their remuneration per unit.
Circular debt is growing steadily and has doubled since this government took office. Higher transmission and shipping losses from distribution companies (DISCOs), lower recovery of invoiced amounts, and non-payment of subsidies are among the main causes of circular debt accumulation which is around PKR 2.3 trillion as of 6/30/2021!
The external debt reached on June-21. USD 122.2 billion
The PML-N added $ 35 billion during its four-year tenure and carried out mega-projects such as electricity projects, mass transit, road networks, etc. While the incumbent PTI government has not launched a mega-project and has so far added $ 27 in the first three years of the term (2018-23) on the debt stock increased. Domestic debt rose to an all-time high of Rs 27.518 billion in July 21, and most of the budgeted revenue is used for debt servicing. The composition of foreign debts and liabilities is also changing rapidly. In the past, Pakistan relied on long-term concessional credit inflows from multilateral and bilateral sources, but now the focus is shifting to commercial credit and debt with high interest costs. The effect of this adventure does not enhance the life of the common man, but increases the national debt. The Summary of Pakistani Debt and Liabilities shows that the amount of debt each Pakistani had in June 2018 was around 135,000 rupees, which has increased to 60% in the last three years and now each Pakistani owes around 217,000 rupees.
It is indeed strange that, despite the full support of all parties involved, the PTI government has failed to provide the people of Pakistan with essentials. The historical rise in fuel prices and electricity shows that the misery of the common man will not be over anytime soon. In the past three years, the Pak rupee has depreciated by over 50%. The parity between the US dollar and Pak rupees was around 115 when the PML-N completed its term in 2018, while it is above 175 today in the open market. As foreign debt mounts and payments decline due to the moratorium, the Pak rupee is expected to take further blows and lose strength against the greenback. This will further complicate the economic situation.
The PTI government must pull itself together and try to focus on economic stability. With the frequent changes in the finance team, we saw four finance ministers and five heads of the federal finance authorities. These changes eventually lead to inconsistencies in decisions and policies. Most annoyingly, we always have to ask the IMF to revise our revenue targets. Furthermore, at the domestic level, the government has failed to exercise and enforce its power, and there is no control over the pricing of various commodities, and some elements within the government are blamed by the media for improperly exploiting what is already happening additional fuel gives high inflation.
Government needs to improve its ability to collect taxes, which is vital to the running of government, and this ad hoc approach to such critical functions will serve no purpose. It is time for the government, in consultation with experts and business stakeholders, to develop a common business agenda that could provide guidance for our economic path. By closing loopholes that prevent wealthy corporations and individuals from paying a fair share of taxes, the PTI government, by imposing profit and carbon taxes on oil companies, can generate enough revenue to build a public transportation system that Would save billions that we would spend mercilessly on importing POL products.
Abdul Rauf Shakoori is a US-based corporate lawyer and expert on White Collar Crimes and Sanctions Compliance. You recently co-authored the book Pakistan Tackling FATF: Challenges and Solutions.
Copyright Business Recorder, 2021
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