Economic Woes By Dr Qaisar Rashid
The International Monetary Fund (IMF) is unrelenting in its demands. Now, it has asked Pakistan to increase the sale price of natural gas from January 1, 2024 to reduce further the circular debt which currently stands at Rs 1,250 billion. With that, it is apparent that economic woes of Pakistan are unremitting.
In order to reduce circular debt in the natural gas sector, Pakistan has decided to raise gas price up to 193 per cent with effect from November 1, 2023. The substantial price hike would help the government collect revenue to the tune of Rs 980 billion in the ongoing financial year, 2023-24. Woefully, the IMF is dissatisfied with the price hike and asks for further rise in price because the expected revenue gain would still be short of catching up with the circular debt.
The IMF demands that the circular debt must be slashed by collecting revenue from consumers instead of the government offering subsidy to the natural gas sector. In this regard, if Rs 1,250 billion were not collected in addition to the projected revenue collection target, the government would have to allocate funds as subsidy to the natural gas sector in the next budget for the financial year 2024-25. By an estimate, a further increase in gas price by 5 per cent would generate Rs 50 billion and an increase by 10 per cent would generate Rs 100 billion and so on. It is expected that January would see a further rise in gas price.
The IMF has justified its stance by saying that the rise in the gas tariff was due since 2013 but the governments in charge refused to increase the price. Consequently, the year 2023 has been witnessing the piled up circular debt, which should not be offset by any kind of subsidy. As per the IMF, the governments had to raise the price of natural gas biannually to meet the rising circular debt, but they failed to do so. This is the point where the IMF is identifying two things: first, political expediency engulfing economic sector, and second, over-reliance on subsidy to postpone the circular debt payment to the succeeding government.
In a way, through its demand of price hike, the IMF has struck at the culture of deferment employed by successive governments to appease voters without addressing fundamentals of economy. It also means that economic wizards who took over the charge of the Finance Ministry played their roles in befooling people by presenting a budget incongruent with ground realities. Budgets gave a fall sense of achievement by predicating on specious claims of economic growth. In fact, it was not. Pakistan was seeking loans from international financial institutions to subsidize sectors incurring losses and sustaining debts such as circular debt. The economy was running on borrowed money and the sectors suffering losses were running on subsidies. The whirlpool has brought Pakistan to the reality check in 2023.
For the same reason, for a middle-class consumer, it is tremendously painful to afford the price hike and the concomitant inflation – rather hyper-inflation. The consumer is in disbelief to discover that the whole semblance of economic growth was a farce and that hyper-inflation would outclass their earnings.
In February this year, when Pakistan was negotiating a staff-level agreement with the IMF, the then government declared that it would follow austerity measures, which would help it reduce non-development expenditures. Shortly afterwards, it was transpired to the government that it was easier said than done. Mere austerity measures were insufficient to meet the budgetary shortfall. Above all, the IMF was unimpressed. The IMF demanded restructuring the economy to fill up the exchequer immediately by taking steps which had been pending since long – say since 2013. The dirty job is now being done by the interim government.
After 2013, Pakistan witnessed upheavals of revolutionary sort meant for duplicating a coloured revolution in the name of this cause or that cause. Imported and local firebrand speakers made their mark. Indigenous revolutionaries propped up the idea of upending the system. The governments remained embroiled in political combats and preferred not to annoy voters by raising the price of utility bills. The victim remained the economy and, by extension, people, who are now paying the price of temporizing on raising the tariff on utility bills including gas, oil and electricity. In 2023, people have been paying the amassed price of the past 10 years.
As Pakistan is reluctant to reduce its non-development expenditures, the cost is being paid by development expenditures, which are at a standstill. To elaborate, in the first four months (July –October) of this fiscal year, on development projects, the federal government could spend only Rs 76 billion, which were equivalent to one-fourth of the authorised funds (Rs 301 billion) by the Planning Ministry under the Public Sector Development Programme (PSDP) 2023-24, as stated by the ministry on November 22. The attempt to reduce development spending is replete with consequences in the realm of economic growth.
The prime reason may be that the IMF is soft on the policy of denying development to the country. Apparently, Pakistan has taken refuge in the argument that it is the country’s internal matter to prioritize non-development expenditure or development spending. Nevertheless, it is still a blessing that Pakistan is continuing with supporting the lower deprived class of society with the Benazir Income Support Program in this fiscal year.
Economic Woes By Dr Qaisar Rashid
Source: https://www.nation.com.pk/25-Nov-2023/economic-woes