Absorbing the substantial impact of increase in prices of petroleum products proposed by the Oil and Gas Regulatory Authority (OGRA), the government has once again decided to partially pass on the burden to consumers and increased the price of petrol by Rs 5 per litre for the month of November.
The incumbent government is trying its best to curb the economic crisis the country is facing, but they cannot be blamed for the rise in petrol prices. Much of the blame should instead be directed at the previous government, which wanted to avoid taking the painful political decision to increase prices during its last few months in power. The increasing international price of oil coupled with the devaluation of the rupee had made importing oil more expensive than ever. The price increase is an indictment of the economic management of the previous government. Our foreign exchange reserves are less than $10 billion as most of the reserves are spent on debt-servicing.
The real problem is Pakistan’s petroleum dependency and how it negatively impacts its balance of trade. Already, there is a significant cash flow problem that has been created by an ever-widening trade deficit. Petroleum products are the most significant chunk of the country’s import bill. The impact of the international price increase for oil cannot be offset by increasing domestic prices for oil. The simple reason is that it does not increase the country’s foreign exchange reserves.
An argument can still be made that the increase in petroleum prices is unjustified. Removing subsidies on essential goods disproportionately hits the poor. But this too is a result of the previous government’s policy and performance. It spent its four years in power taking dictation from the IMF and increasing indirect taxes and removing subsidies. This was done because it did not have the appetite to collect taxes from the wealthy and influential. The PPP has called on the government to withdraw this most recent increase. What is needed, however, is not an ad hoc solution for the government to set a comprehensive policy on subsidies and taxation. We need to decide if we as a nation want to continue balancing the books by making the poor and the middle class pay more or if we will finally get serious about ensuring that the rich pay their fair share of taxes. The PTI government has been making the rich pay, but experts argue that the government needs to tighten its grip on the rich, otherwise it is strangling the poor only.