While the caretaker government in Pakistan struggles to find a solution to ‘electricity price shock’, a potential petroleum price shock has hit the people and fuel products are selling at beyond Pakistan Rupee (PKR) 300 per litre. This crisis comes at a time when protests over exorbitant electricity bills refuse to die down across Pakistan. The caretaker government is mulling over a plan of giving one-slab benefit to household consumers that would help to reduce their misery. The caretaker set up continues its brainstorming sessions to find ways to provide relief to the protesting masses, but without any success. Meanwhile, in the first week of September 2023, the caretaker government pushed through a sharp increase in the price of petrol by PKR 14.91 per litre and high-speed diesel by PKR 18.44 per litre. The spike brought the petrol price to PKR 305.36 per litre and HSD to PKR 311.84 per litre mainly because of currency depreciation and increase in international oil prices. The latest price hike comes less than a month after the caretaker government on 15 August raised fuel prices by up to PKR 20 per litre. That jump in petroleum prices had come after similar hikes by the previous government on 1 August. Pakistan is caught between a rock and hard place as any move to reduce electricity tariffs could go against the terms set by the International Monetary Fund (IMF) for giving financial aid.
Faced with nation-wide protests the caretaker government has been mulling over a number of proposals to provide relief to the consumer on electricity prices. The Express Tribune reports that several plans to extend instalment relief to consumers for the bill payments have been discussed by the caretaker government, one of them being to give the option to pay bills in more than just two instalments, offering greater flexibility. Another proposal is to provide relief to consumers by allowing them to pay a portion of their heavy electricity bills during the winter months when energy consumption generally decreases. Moreover, a recent meeting of the Cabinet recommended seeking the Ministry of Finance’s opinion on reducing the taxes on electricity bills. A final decision regarding tax reduction will depend on whether it contradicts the agreement between the government and the IMF. However, there appear to be no plans currently on reducing the electricity bills themselves. The fact is that the caretaker government in Pakistan has no instrument available to provide any permanent relief in electricity prices to the people, except providing instalments for a couple of months or staggering recoveries of current two-month bills to winter months, when normal consumption drops by half. Both these options are revenue neutral, although they could create cash flow problems for power companies for a few months. In fact, the government had already requested the power regulator to stagger charging another PKR 5.40 per unit quarterly tariff adjustment over six winter months starting October instead of permissible in three months.
These proposals come as waves of violent protests have swept Pakistan with citizens vehemently rejecting the exorbitant prices of electricity. Citizens, traders, and business communities across the nation have declared that they are no longer willing to shoulder the weight of exorbitant electricity costs and outrightly refused to pay bills, while resisting any action to disconnect their electricity supply. The business community in Balakot (Manshera, KPK) for instance, rejected the recent surge in electricity bills and announced a shutter-down strike that brought the city to a grinding
halt. Under the banner of Anjuman Tajran, the business community took to the streets en masse, demanding immediate action to alleviate their economic pain. Similarly, in Hyderabad, Sindh Province, the Chamber of Commerce announced a shutter-down strike with countless shops and business centres slamming their doors shut.
Mansehra (KPK) also experienced widespread closure of businesses after a union of traders called for a complete shutdown of all business centres in the city. Pind Dadan Khan (Jhelum, Punjab Province) also witnessed a complete shutter-down strike as per the call by Anjuman Tajran against electricity bills, which had become a source of growing concern for the residents. Similar sentiments were echoed in Chichawatani (Jhelum District, Punjab) where the local community rallied behind the Chichawatni bar’s call for a strike against the high electricity bills. Agitated consumers in Rawalpindi surrounded the Islamabad Electric Supply Company station and set fire to their electricity bills. The protesters vehemently opposed the government’s taxation policy, lamenting that their hard-earned money was being squeezed out through exorbitant bills. They declared their refusal to pay bills and vowed not to let their electricity supply be disconnected. Demonstrations resulted in severe traffic congestion, causing long queues of vehicles.
Currency depreciation is the major cause of the current price shock in electricity. The Pakistan government has no lever at present to control it given the ongoing IMF programme. Seventy per cent is because of currency depreciation, while another 10-12 per cent hike is because of interest rates. The government and State Bank of Pakistan’s hands are not only tied under the IMF programme but are under pressure to further tighten monetary policy. The proposals made by the Power Division to the Prime Minister’s Office along with a few other suggestions, can only be implemented at the cost of the IMF programme and therefore, the Finance Ministry did not support it. For example, the Power Division had also indicated providing one-slab benefit to the residential consumers as used to be the case until last year but had to be withdrawn under the IMF programme to arrest circular debt because of substantial financial impact.
Also, another suggestion pertained to lowering of sales tax rate or doing away with other taxes like income tax and surcharges but those too had been imposed under the overall scheme of the IMF programme to achieve a specific tax target and circular debt reduction plan in consultation with international lenders, including the World Bank and the Asian Development Bank. Also, the tax rates and impositions are duly enforced by parliament through finance bills while surcharges were imposed by successive governments – the latest being PKR 3.23 per unit that came into force only a few months ago in the run-up to the revival of the suspended IMF programme.
Further, it is pertinent to note that the caretaker government is bound under the ongoing SBA (Stand-By Arrangement) to provide quarterly data on performance relating to recoveries and circular debt changes to the IMF in line with set targets no later than 30 days on completion of each quarter. Hence, the government cannot afford any slippage on the completion of the first quarter on 30 September 2023 which would come under direct review of the IMF staff by the end of October or early November for the disbursement of US$ 710 million, second tranche of the US$ 3 billion SBA. Mainly because of these challenges, it was agreed at the PM’s Office that proposals regarding the one-slab benefit and relief in taxes should be referred to the
Finance Ministry before a formal discussion is taken at the meeting of the federal cabinet. So, for the foreseeable future, Pakistan will continue to be in a mess. Either way, the people of Pakistan are being taken for a royal ride, with no recourse to stop the horse mid-course and get off. The challenge for the government will be to find ways to get around the IMF conditions on the economy and yet manage to grow. That is the most difficult task ahead. Political stability is thus of paramount importance in the coming weeks and months. While the Army has taken charge of getting Pakistan’s economy on track, past experience suggests that not much will happen except for cosmetic change. Pakistan is on a one-way road to hell, and little is being done to stop it. May Allah save the people of Pakistan!