Political uncertainty exacerbating fuel subsidy harm – Pakistan – DAWN.COM – DAWN.com

KARACHI: What began as an act of abounding generosity for car owners in the last weeks of the PTI government has now turned into a wholesale raid on the national exchequer.
The fountain of borrowed money is about to run dry, yet the coalition government is still dragging its feet on the reversal of massive fuel and electricity subsidies that the last government doled out in February.
Finance Minister Miftah Ismail believes the best option is to terminate the subsidy for all, but he seems to want to try every other option first.
The announcement of impossibly extravagant handouts worth nearly half a trillion rupees just days before its ouster was the first sign that the PTI wasn’t going to be lenient in defeat. The ruling coalition has been dishing out a subsidy of Rs31 on every litre of petrol and Rs73 on every litre of diesel. This is in addition to a separate subsidy of Rs5 on every unit of electricity.
Tarin insists funds he relied on are still available to current govt; expert says deficit economies can’t have ‘funded’ subsidies
The fiscal hit amounts to Rs102 billion for the current month alone. For perspective, the monthly cost of running the civilian government is Rs45bn, according to Mr Ismail.
Speaking to Dawn in a recent interview, former finance minister Shaukat Tarin insisted that the Rs466bn package was “fully funded” i.e. money was to come out of identified sources of public revenue and the subsidies wouldn’t contribute to the fiscal deficit.
He planned to arrange Rs100bn by curtailing the Public Sector Development Programme (PSDP) and draw another Rs140bn from the federal funds reserved for Punjab and Khyber Pakhtunkhwa, the two provinces where the PTI was in power.
Mr Tarin would take out Rs120bn from the government’s Rs625bn dividends from three state-owned energy companies; draw Rs50bn from the additional tax collection by the Federal Board of Revenue and generate another Rs56bn by cutting back on federal grants to reach the total of Rs466bn.
“All these sources are still very much there for the present government to tap into,” he said, adding that the International Monetary Fund (IMF) was also on board with this plan.
“There was nothing in the package that would draw the ire of the IMF. Company dividends weren’t budgeted and grants were expenses that we could reduce. The reduction in the PSDP and provincial funds had nothing to do with the IMF,” the former finance minister told Dawn.
All that the IMF asked the Pakistani authorities was to furnish formal confirmation from the provinces and the state-owned energy companies that they were ready to spare the funds for the federal government’s subsidy programme, he said.
Mr Tarin accused the current government of muddying the waters by needlessly adding the subsidy bill of Rs466bn to the fiscal deficit. “They’re playing politics. They just want to show that the PTI left behind a big fiscal deficit.”
But economists of all shades and hues seem to be unanimous in their disapproval of the untargeted subsidies, which indiscriminately reduce the fuel expense of all citizens and businesses, including the Miftah-owned Candyland, a thriving enterprise with an annual bottom line of over Rs1.7bn.
The general public now applauds snarky tweets by PTI stalwarts on the impending economic suicide, as if they were sturdy blows at a knockout boxing match.
According to economist Ammar H. Khan, no subsidy can be “fully funded” in an economy with a fiscal deficit. He said the country would still need more dollars to import fuel, even if the subsidy was fully funded in the local currency.
The PML-N has so far let political short-sightedness gain ground on common sense. Populism of the PTI has given way to the indecisiveness of the PML-N. With the former ruling party gaining post-mortem popularity, its economic blunders seem to have slipped into comparative obscurity.
Such politically-driven misrepresentation, Mr Khan said, hurts the country in the long term.
Published in Dawn, May 24th, 2022
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