Tariff questions

With the government set to increase gas and power tariffs once again, more questions are being asked about how much misery the Pakistani public will have to face and whether things will ever get better. As it stands, the government is sticking to talking tough. Finance Minister Asad Umar on Tuesday said that the government plans to increase gas and electricity prices gradually by withdrawing subsidies. The government’s position is that Pakistan cannot afford subsidies to sectors of the economy and it will slowly be removing most subsidies in both the gas and power sectors. The finance minister’s tough talk will be worrying for the public, which will face much higher tariffs for energy consumption. But the bigger question is what all this would mean for the economy. High energy costs do not support any agenda for growth. If anything, there is a greater likelihood of capital and industry fleeing from Pakistan, rather than the opposite.Is this a cost that Pakistan will have to pay for decades of economic mismanagement? Or does the government have another route it can choose? This is the question that Pakistan’s current economic managers will have to answer away from upcoming meetings with the IMF. Much of the IMF-related economic policies that the PTI government has adopted are designed to create an economic slowdown. A high-growth high-debt approach like the one the PML-N followed in the last five years is a risky approach, but is able to paper over the gaps in the economy in the short to medium-term. With policies designed to slow economic growth, the cracks in the economic management of the country are becoming wider. Within this context, the government’s decision to increase power tariffs by another Rs2 per unit will set the economy back further. One could be optimistic and think that the Rs200 billion extra collected will bring down the circular debt in the power sector, but this could very well prove to be a false expectation.Tariff increases have been attempted in the last two decades, but the situation has continued to get worse. Which means that, unless the government decides to undertake a drastic and sudden increase in tariffs, the cosmetic tampering is likely to do little to repair a downward spiral. Circular debt in the power sector is said to have hit Rs1,410 billion; only six months ago it was reported at around Rs1,000 billion. A slower economy is not likely to be a better economy. The government might be in a tough place, but lettings things get worse before they get better seems is a recipe that does not work.

from The News International - Editorial https://ift.tt/2TZPCgL