Pakistan’s prime minister has agreed to reverse an unpopular fuel price hike under pressure from opposition parties, as he seeks to save his shaky government following the defection of a key coalition partner.
The US called the decision a “mistake” and the IMF, which has an US$11 billion loan program with the nuclear armed nation that depends partly on it making painful economic reforms, also voiced misgivings.
The decision — which a Pakistani official said could cost the government US$58 million a month — along with delays in a planned tax reform could make Pakistan miss its budget targets and endanger remaining payments from the IMF loan.
“All the political leadership has agreed that fuel prices should be reversed,” Pakistani Prime Minister Yusuf Raza Gilani told the National Assembly on Thursday. “I announce a restoration of the prices” to the levels they were on Dec. 31.
The rollback of the 9 percent price increase, which took effect on Friday last week, was one of several demands made of Gilani’s Pakistan People’s Party by former prime minister Nawaz Sharif’s Pakistan Muslim League (PML-N).
Chaudhry Nisar Ali Khan, leader of the PML-N in parliament, said Gilani had “bowed to the demand of this parliament,” calling the move a “big act.”
One of Gilani’s main coalition partners, the Muttahida Qaumi Movement (MQM), announced on Sunday that it was leaving the government in protest of the fuel policy, leaving the prime minister without a majority in parliament.
MQM leader Faisal Subzwari said on Thursday that while his party appreciated the decision to reverse the increase, it would not rejoin the government.
US Secretary of State Hillary Rodham Clinton said she warned Pakistan’s ambassador to the US on Tuesday against reversing the price increase.
“We have made it clear, as I did in a meeting with their ambassador, that we think it is a mistake to reverse the progress that was being made to provide a stronger economic base for Pakistan and we will continue to express that opinion,” Clinton told reporters at a news conference.
Analysts also criticized the decision because they said it would negatively impact Pakistan’s fiscal deficit.
“This reinforces the feeling ... that political instability is beginning to affect economic decisions,” said Sakib Sherani, an independent economist who recently resigned as the economic adviser to the government.
“This is very regressive and there is no justification for it,” he said. “We’re not presenting any viable fiscal measures to counter the deficit.”
In 2008, Pakistan linked its domestic oil prices to international oil prices.
The decision to reverse the price hike means the government will have to provide a fuel subsidy, increasing its spending and widening its budget deficit by as much as 0.2 to 0.3 percentage points of GDP in the 2010-2011 fiscal year, Sherani estimated.
A senior Petroleum Ministry official said that the reversal would cost the government around 5 billion rupees (US$58 million) monthly.
Combined with a delay in implementing a new reformed general sales tax, analysts said the deficit target of 4.7 percent of GDP for the current fiscal year would be almost impossible to achieve.
This could imperil the remaining payments of an US$11 billion IMF loan to prop up the economy, which is contingent on ending subsidies and widening the tax base.
The IMF criticized the subsidies on Thursday and said the money could be better spent on social programs.
“They’re inefficient and untargeted so that the bulk of the benefit from the energy subsidy goes to higher income individuals and large companies,” IMF spokeswoman Caroline Atkinson said from Washington when asked whether -reinstating the subsidies would derail the loan.
“We continue to work with Pakistan to see if we can reach agreement on measures that the government can put in place to put its economy on a sounder footing,” she said.
The defection of the MQM left Gilani vulnerable to a no-confidence vote in parliament, but the threat of that appeared to have faded even before his reversal on fuel prices.
Instead, analysts expect the opposition to try to slowly squeeze the government, which is already under intense pressure, on several other fronts.
Millions of Pakistanis are growing frustrated at widespread corruption, power cuts, poverty and rising inflation — problems that risk pushing more young men to join militants groups in the South Asian country.
Nearly half of China’s major cities are suffering “moderate to severe” levels of subsidence, putting millions of people at risk of flooding, especially as sea levels rise, according to a study of nationwide satellite data released yesterday. The authors of the paper, published by the journal Science, found that 45 percent of China’s urban land was sinking faster than 3mm per year, with 16 percent at more than 10mm per year, driven not only by declining water tables, but also the sheer weight of the built environment. With China’s urban population already in excess of 900 million people, “even a small portion
UNSETTLING IMAGES: The scene took place in front of TV crews covering the Trump trial, with a CNN anchor calling it an ‘emotional and unbelievably disturbing moment’ A man who doused himself in an accelerant and set himself on fire outside the courthouse where former US president Donald Trump is on trial has died, police said yesterday. The New York City Police Department (NYPD) said the man was declared dead by staff at an area hospital. The man was in Collect Pond Park at about 1:30pm on Friday when he took out pamphlets espousing conspiracy theories, tossed them around, then doused himself in an accelerant and set himself on fire, officials and witnesses said. A large number of police officers were nearby when it happened. Some officers and bystanders rushed
HYPOCRISY? The Chinese Ministry of Foreign Affairs yesterday asked whether Biden was talking about China or the US when he used the word ‘xenophobic’ US President Joe Biden on Wednesday called for a hike in steel tariffs on China, accusing Beijing of cheating as he spoke at a campaign event in Pennsylvania. Biden accused China of xenophobia, too, in a speech to union members in Pittsburgh. “They’re not competing, they’re cheating. They’re cheating and we’ve seen the damage here in America,” Biden said. Chinese steel companies “don’t need to worry about making a profit because the Chinese government is subsidizing them so heavily,” he said. Biden said he had called for the US Trade Representative to triple the tariff rates for Chinese steel and aluminum if Beijing was
Beijing is continuing to commit genocide and crimes against humanity against Uyghurs and other Muslim minorities in its western Xinjiang province, U.S. Secretary of State Antony Blinken said in a report published on Monday, ahead of his planned visit to China this week. The State Department’s annual human rights report, which documents abuses recorded all over the world during the previous calendar year, repeated language from previous years on the treatment of Muslims in Xinjiang, but the publication raises the issue ahead of delicate talks, including on the war in Ukraine and global trade, between the top U.S. diplomat and Chinese