Steady tariffs

The IMF has reportedly stopped a substantial reduction in electricity tariffs, at least for now. The Rs8.0 per unit reduction in electricity tariffs Prime Minister Shehbaz Sharif was expected to announce on Pakistan Day (March 23), reportedly contingent on IMF approval, never materialised. While the IMF had already given the go-ahead to a Rs1.30 per unit cut in power tariffs, helped along by not decreasing petrol prices for three months, this relief will be limited to just one month. This is the second major setback for Pakistan’s hard-pressed energy consumers in recent weeks, with the government also revising the country’s net-metering framework and drastically cutting the purchase of surplus electricity from solar users to Rs10.0 per unit from Rs27.0 per unit. The net result is that all power consumers, whether they are on the grid or have their own solar systems, are paying more. Combined with the steady petroleum prices, the cost of living burdens for the majority of Pakistanis show no signs of easing. And yes, while inflation is lower than it has been in around a decade, this does not necessarily mean lower prices. Quite often, prices are still going up, just not as fast.

It would be easy to simply chalk this development up as yet another sacrifice that the country has to pay to keep things moving towards fiscal consolidation and overall macroeconomic stability. Most analysts had already warned last year that this would be one of, if not the toughest IMF programme Pakistan had entered to date. As things stand, the government is struggling to keep up. Pakistan’s first biannual review under the EFF concluded last Friday without a staff-level agreement, despite both the government and the IMF delegation claiming that significant progress had been made towards reaching a broader agreement. Major stumbling blocks reportedly include the inability of the government to achieve a primary surplus of Rs2.4 trillion for the current fiscal year, persistent losses in the power sector and challenges in curtailing expenditures. The authorities have also fallen short of revenue collection targets for the first eight months of the ongoing fiscal by a sizable Rs604 billion. In this context, it is easy to see why a Rs8.0 per unit power tariff cut would be hard to swing by the IMF. The Fund is likely looking for ways that the government can further curtail expenditures and consolidate revenues.

However, one must ask if this is really the way towards fixing the economy. A country where the majority are struggling to pay their bills and growth is basically stagnant will not maintain economic stability for long. Also, one might ask what the point of all this macroeconomic stability is if it means subjecting the country’s households to prolonged financial stress and, in some cases, turmoil. And while it is fair to question the wisdom of the IMF’s strategy, the government is not blameless here either. Yes, keeping the economy afloat requires making tough decisions to obtain IMF loans. But the revision of the net metering rate is increasingly looking like an unforced error on the government’s part. Consumers should not have to pay into a failing national grid when better alternatives are available. Now, with the power tariff cuts temporarily shelved, the government will have to get more creative about how it can help the people.