Within months of taking oath as US president, Donald Trump authorized the dropping of a ‘mother of all bombs’ on a cave complex in the Nangarhar province of Afghanistan believed to be in hands of Islamic State warriors. Last month, Indian Prime Minister Narendra Modi warned Pakistan of an Indian ‘moab’, a nuclear bomb.
The common man in Pakistan, however, was undone by the decision of his own government on May 5 to raise the energy prices. The prices of petroleum products went up by more than 9 per cent. Such a massive hike has little chance of going unnoticed in a country facing a macro-economic crisis. The government has failed to remedy the situation. The finance minister, also known as ‘Minister Deficit’, stepped down last month, and a finance secretary left for three-year vacation abroad.
A day after the government’s decision to raise the prices of energy products, global oil prices declined by more than two per cent. The government justified the price hike by pointing to a stronger dollar and the shrinking foreign exchange reserves. It is an attempt by the government to balance the unhinged budget books at the close of the fiscal year. Some economists speculated that the conditions imposed by the International Monetary Fund and the Asian Development Bank may have forced the government to raise consumer spending in the energy sector.
The GDP depends on consumer spending, business investment and government spending. The energy sector has attracted hundreds of millions of dollars as business investments in the current year, with the promise of more investments in the years to come. That the government has tried to artificially increase consumer spending in the sector suggests that government spending in the energy sector has decreased. This is despite the fact that the government spends more than two per cent of the GDP in energy sector subsidies.
Pakistan consumes around 100 billion kWh of energy per year, compared to India’s 1,100 billion kWh. The numbers reflect the difference in the size of their economies
There is no let up in government policies in hostility towards the poor. The energy sector price hike has become a double whammy for consumers. They will have to buy overpriced gasoline, electricity, expensive agricultural and industrial products. Whenever, the energy prices go up, the prices of 62 basic commodities also rise. If the price hikes are sustained, as the trends indicate, it will only mean that agriculture and domestic industry will lose revenue. They may offload some of the labour as well. That will tax the economy with higher unemployment and lower revenues. The government’s efforts to avoid the budget deficit puts the consumers’ budgets in deficit. People wonder therefore whether Imran Khan is just a ‘prime minister for the rich?’
Pakistan has the worst taxation numbers in the region. Its tax-to-GDP ratio fails to make it into double figures if a $150 billion informal economy is taken into account. The GDP growth rate too is among the lowest in the region. The IMF and World Bank reports indicate slower years ahead.
Meanwhile, India boasts more than 7 per cent GDP growth a year compared to Pakistan’s 3 per cent. At the current rate, India will surpass Germany in 8 years. It will overtake Japan to become the third largest economy in the world by the year 2030. Pakistan will need twice the time to join the future $25 trillion economies. Policymakers and economists remain concerned about Pakistan’s pace.
India would love to impose international economic sanctions on Pakistan but it cannot. However, it is trying to put Pakistan’s economy under strain by buying out oil to a point that Pakistan’s demand is hurt. In an age where economies are structured around energy, India is taking the lead at the expense of its competitors in the region, including Pakistan. Pakistan consumes around 100 billion kWh of energy per year, compared to India’s 1,100 billion kWh. The numbers reflect the difference in the size of their economies. On a yearly basis, an average Pakistani consumes 469 kWh of energy, which is nearly half as good as his Indian counterpart.
Pakistan and India are both energy-importing nations. They rely heavily on international trade and conditions to sustain energy imports and thereby, economic development. High energy consumption with little domestic production can be a double-edged sword. If international trade environment changes, it will raise questions of sustainability of economic development. Therefore, both countries need low-cost imports. India loses 6 per cent of its GDP in trade-balance. Like Pakistan, it also relies on Foreign Direct Investment. It exports more than 11 per cent of its GDP while Pakistan exports less than 9 per cent of its GDP. Indian economy is thus more engaged with the world economy while Pakistan’s is a more self-sustaining.
The global oil producers are wailing over low profits. In the event of a conflict in the Persian Gulf, or a supply disruption from there, mega-energy importers are bound to take the hit. Therefore, energy importers like Pakistan and India seek more favourable trade partners. Gasoline prices in India are already 50 per cent more than Pakistan. The consumers in India face the same problem of price hikes month in, month out.
The writer is a freelancer