Pakistan's new prime minister will cut fuel and electricity subsidies
Pakistan rose Rs 4.85 per kWh of electricity
According to Dawn, in order to offset the pressure on Pakistan's finances caused by the rise in fuel prices, on April 15, Pakistan's National Electricity Regulatory Authority (Nepra) raised the price again, planning to raise the price by 4.85 rupees per kWh from April. The increase in electricity prices will increase the revenue of power companies by Rs 377 crore for the whole year.
In recent months, the actual cost of fuel in Pakistan has been 56% higher than the reference price. At the request of foreign lending institutions, the price of electricity in Pakistan has been rising, and the People of Pakistan have to bear the pressure of rising electricity prices.
Pakistan's domestic fuels accounted for 46% of total electricity generation in February, the data showed. Hydropower's share of national electricity generation increased from 5.83% in January to 18.22% in February.
In order to recover the full cost from today, the government would have to raise gasoline prices by Rs 21.30 and Rs 83 respectively, according to estimates by oil and gas regulators. If the government also wants to recoup the sales tax and oil development tax on these products, it is proposed to raise the price of gasoline to Rs 53.30 and the price of diesel to a maximum of Rs 120.
The new prime minister faces a dilemma
Pakistan's new prime minister, Sharif, is in talks with members of the new government to eliminate fuel and electricity subsidies that would be a huge financial burden on the government in the face of a sluggish economy. Treasury officials say the government's $2.06 billion relief measures have become unsustainable in a way that stretches the finances and jeopardizes the ongoing IMF bailout program. At present, Pakistan's fiscal deficit is as high as 10% of GDP.
Pakistan is on track for a $6 billion IMF bailout program but has yet to complete a seventh review that would release more than $900 million. Pakistan's foreign exchange reserves fell from $162 to $10.8 billion in a month, a record low, providing only 45-50 days of import financial support. "The new government will either raise prices, which will come at a high political cost, or cover the deficit by reducing other non-development spending, which is still extremely difficult politically because it is difficult for the population to support such a policy."
Pakistan is facing a terrible economic crisis
Pakistan is facing a terrible economic crisis, and populist policies enacted under political pressure will certainly not help anyone in the long run – especially all those who benefit from them. Ultimately, beneficiaries always repay these subsidies in a more difficult way: through more indirect taxes or higher taxes, and drastic cuts in public sector spending on basic services such as education, water and health care.
The severity of the looming economic crisis requires the new government to adopt prudent, forward-looking policy decisions to put the country back on a sustainable growth trajectory.
Compared with Imran Khan's populist economic policies, Sharif has been cautious. But in the face of the mess of the takeover, if the Sharif government does not come up with effective measures to govern the economy, it will once again fall into a worse situation than Imran Khan.