Jokes and desperation

THAT is what things have now been reduced to: jokes and desperation. Wednesday saw an example of each. It was a joke when the National Accountability Bureau (NAB) told a Senate committee that it had recovered up to Rs821.5 billion “since its inception” while the finance ministry told the same committee in the same hearing that only Rs6.5bn had been deposited in the account set up specifically for the purpose of receiving all recovered amounts.

Immediately a question arose: where did all the money NAB is claiming it recovered, go? The question was taken up later in the day in the Public Accounts Committee (PAC), where the auditor general (AG) actually told them that NAB recoveries are not audited regularly, nor is there any audit of all the consultants and lawyers they hire. And this after the massive scandal around the hiring of foreign consultants that came to be known as the Broadsheet scandal, which ended up sticking the Pakistani taxpayer with a settlement bill of Rs4.59 billion as fines to a British firm. Even after that, nobody thought of auditing the bureau to find out whether the same practices as those unearthed in the Broadsheet scandal were continuing to this day!

So the PAC has now instructed the AG to conduct two audits. One is of all NAB recoveries in the preceding year and the second is to inquire into the fate of the £190 million recovered from the property tycoon Malik Riaz by the National Crime Agency from seizure of unexplained assets in the United Kingdom. That money landed in a Supreme Court account in December 2019 and nothing further has been heard about it since then. As per the PAC’s instructions, the first audit is to be completed in one month, and the second in a week. So the jokes are set to roll on.

The desperation was present in the prime minister’s televised address to the nation. Waking up to the relentless price spiral that is engulfing the country, Imran Khan took to the airwaves yesterday to promise what he claimed would be “the biggest welfare package ever in the history of the country”. What he actually announced was a Rs120bn subsidy to discount the price of flour, ghee and lentils, without telling us how this will operate. Will it be through the utility stores, which had just raised the prices of these commodities in July in light of budgetary constraints? And where will the money come from, given that his government is about to conclude an IMF programme, as per his own adviser on finance?

These questions are quite aside from the hyperbole involved in describing a Rs120bn subsidy on three food items as “the biggest welfare package ever in the history of the country”. All the other programmes he talked about are already in play, so they weren’t exactly announced today. But the bigger thing to note in the address was one quick, passing line in which he said petrol prices will need to rise again “by a small amount”. Recall that only last Saturday the PM Office and the finance ministry had both issued statements saying that the price of petrol and diesel will not be changed in the “public interest”.

“If there [is] any price differential, then [the] government [will] bear the burden and compensate both OMCs (oil marketing companies) and refineries”, the finance ministry’s statement said, and added that the government was “fully committed to provid[ing] maximum relief to the masses”. Four days later they are already back-pedalling on this commitment, a habit of theirs that is now so well known that a proper lexicon has been used to describe it: the U-turn.

The fuel price of Oct 16 was driven almost entirely by an increase in the cost of supply by Rs10. And this increase in the cost of supply is driven in part by world market prices, and in part by a falling exchange rate. Consider that crude prices rose in October to oscillate between $80 and $85 before tapering down again. This was a rise compared to September, but not a historic high by any measure. In fact, for almost four years between 2010 and 2014, crude prices remained far above the $80 mark, even crossing $100 for extended periods of time, but not once did the price at the pump have to be raised to Rs137 like today. And back then, as Imran Khan himself likes to point out repeatedly, the retail price had a much larger tax component than it does today.

So why does $80 oil translate to Rs137 at the pump today? Because the rupee went from 88 to a dollar at the start of this period to 98 at the end. That’s an 11 per cent devaluation over five years. By contrast, the rupee has gone from around 109 to a dollar in August 2018 to 170 today, which is almost 55pc devaluation in three years. One rupee buys far less oil in international markets today than it did a decade ago, even though the dollar price of the oil may be the same in both points in time. This is the principal reason why the cost of supply is rising, and driving inflation within the country along the way.

Now they have another U-turn to make, which is on taxes on petrol. At the moment, GST of petrol is 6.6pc and petroleum levy is Rs5.6. It is a good bet to make that the reason why Khan chose his televised address to inform the country of a coming “small increase” in the price of petrol is that the IMF is demanding raises in both, GST and levy collections from petrol and diesel, which will obviously fuel inflation further, and these proceeds cannot disappear the way NAB recoveries seem to have.

The jokes and the desperation are both rising in tandem with the prices. The dance is getting more complex. Wait till January and see what shape things are in by then.

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