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Fuel subsidy

The Shehbaz Sharif government is faced with a dilemma whether to keep on appeasing the voters by freezing fuel prices through massive subsidies or to take a realistic view of the rising oil prices in the international market and act accordingly. The government appears to be following a populist path, at least for now. On Wednesday, the ECC okayed a grant for Rs68.7 billion to enable the regime to provide petrol and diesel at subsidised rates. Considering that already substantial subsidies are being given on the sale of petroleum products, another huge amount of subsidy will only add to the government’s growing fiscal deficit, pushing it to an unaffordable level.

The biggest challenge that the incumbent government faces is to put an ailing economy back on rails. Now most economic indicators like budget deficit, trade gap, current account deficit, the declining rupee, soaring inflation, and galloping debt cannot be described as encouraging. Moreover, several billion dollars will be needed for debt repayment. In this grim economic scenario, continued provision of subsidised fuel is something hard to swallow. The rising interest rate has made the availability of credit difficult, and this has combined with increasing inflation to restrict employment generation. Even if goods are available in the market, there are few buyers. Undoubtedly, the country is in a difficult economic situation. Now one way out is to negotiate the resumption of the stalled IMF bailout package of $6 billion.

As was expected, Finance Minister Miftah Ismail has flown to the United States for talks with the International Monetary Fund. Herein lies the crunch. The government is continuing to freeze fuel prices for fear of a backlash from the masses while the IMF has set tough conditions for the release of loan amount. It has demanded abolition of subsidies on fuel and electricity as well as an end to tax amnesty. So, the negotiations with the IMF will be hard sell for the finance minister. The government seems to be waiting for signals emanating from the talks with the international lender. Probably, only then will it put a brake on subsidies.

Published in The Express Tribune, April 22nd, 2022.

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