There, you have it. Even after all the resistance and reluctance, the government was simply forced to raise petrol prices to revive the IMF program. It would have been infinitely better if this painful decision had been taken before the second round of talks between the Fund and the new government because the uncertainty would have been removed earlier and the market would not have haemorrhaged billions of rupees unnecessarily. Nevertheless, the equity and currency markets roared on Friday as they digested the prospect of easing foreign exchange reserves.
It’s also a very cruel irony that even though this step will unleash yet another round of biting inflation, it’s still better for the people than keeping the subsidy that got them cheaper oil and electricity. Because it was well on the way to blowing such a big hole in the current account that the ordinary people would have had to be taxed mercilessly to fill it in the medium to long term. Now, it shouldn’t be long before the Extended Fund Facility resumes and debt money starts making its way to the state bank once again. This should also get the ball rolling with regard to Saudi and Emirati aid money that the government is counting on to pay some of its more pressing bills.
Let there be no doubt, though, that this does not mean that it will be smooth sailing from there. This is but the first of many steps, and the reform process is going to be quite painful. The most important thing is to make sure that there are no stops and starts because if, at the end of it, there isn’t a significant increase in production, exports and tax revenue, then it’ll be a failed effort and the people will get no relief for their sacrifices.
This development also shows that the present government has worked out issues regarding its tenure with the so-called establishment. And that it has been given the assurance that it will not be forced to announce an election just when it’s burnt its political capital by doing the right thing in the longer-term interest of the economy and the people. It will, and should, have time to complete the reforms, deliver results and answer for the results. *