Daily Times

Once again the Oil and Gas Regulatory Authority (OGRA) urges restraint and once again the finance ministry refuses to absorb the exogenous oil shock as Brent crude records a second straight monthly rise in the international market. Once again pumps hoard (now a weekly phenomenon), and life across the board is disrupted as yet another cost-push inflationary round is triggered. So much for monetary and fiscal stimuli aimed specifically at priming aggregate demand. But appreciated as Dr Hafeez Sheikh’s efforts to bolster the government’s balance sheet are, it is surprising they have not yet registered as counter-productive, forcing consumer austerity in times of low growth and rising inflation. Sticking to this particular medicine, especially in the post-2008 crash environment, is difficult to understand. Once sovereigns took on toxic institutional debt, and subsequently governments began feeling the strain, the International Monetary Fund’s usual austere deficit reduction formula was exposed as hollow in Europe as well. Suffice it to say it has lost its credibility as a deployable instrument during stagflation. Yet it remains the option of choice in Islamabad, which ought to be better aware of the policy’s downside.

There are more worrying aspects of the weekly price revision decision. POL prices continue to reflect movements in Brent crude, uptrends at least, even though much of our imported oil is Gulf crude on exceedingly favourable terms. Yet so long as pump and input prices are pegged to international crude, there is much to suggest an incrementally bumpy ride ahead. What if America’s Federal Reserve (Fed) unleashes another monetary stimulus to revive sagging growth, immediately raising international demand, debasing the American dollar and pushing up commodity prices, especially oil? And since we are hostage to international trends, what if the situation around the Straits of Hormuz — already the dominant reason for oil still being above $ 100 per barrel — worsens, with oil prices galloping by the trading day?

Perhaps the finance ministry needs to lend a more serious ear to both OGRA and the petroleum ministry. Weekly revision of prices when the business environment is dull, the fiscal deficit is near nine percent and unemployment is constantly rising risks permanently damaging the growth structure. It also dilutes recent monetary easing. Dr Sheikh’s ministry will do the government, and the people, no favours by propping up its own coffers at the cost of indigenous economic growth necessary for snapping out of our current financial problems. Consumers, businesses, entrepreneurs, households and quite a few ministries seem to disagree with the finance ministry with good reason. It is time for better sense to prevail. *