15.11.2013 Pipeline ambiguity: Honouring commitments
FINANCE Minister Ishaq Dar’s assertion on Wednesday that Tehran was backing out of the Iran-Pakistan gas pipeline project by not giving Pakistan funds to proceed with the project has confused matters even more. Just a day earlier, Water and Power Minister Khawaja Asif said, during his visit to the US to attend a meeting on Pakistan’s energy needs, that completing the project was a “contractual obligation”. It is indeed. But Islamabad’s hemming and hawing — the result of US (and Saudi) pressure to not go ahead with the project and the risk of sanctions if it does — has made the Iranians justifiably impatient. Clarity is needed on the issue; that would only be fair to Iran — and the millions of Pakistanis who for some years now have been in the throes of a major energy crunch.
The fact of the matter is that, political considerations aside, the shortage of gas and electricity has become an unfortunate part of life in Pakistan, hence the state needs to grab hold of any feasible opportunity that presents itself to help it address the country’s energy woes. Oil is expensive, as is alternative energy, which also generates low output. Where viable power production is concerned, as things stand, gas and coal are our best options. Pakistan may have considerable coal reserves, but it has done little to exploit these and seems to have few intentions of doing so at the moment. Our gas reserves, meanwhile, are dwindling and this means we need to import the resource to keep the country’s economic engines running.
As Khawaja Asif pointed out in Washington, since a contract has been signed with Tehran, Islamabad is under obligation to see it through; or else, it should be ready to face the consequences which will go beyond monetary penalties and extend to a worsening of the power situation in the country. Mr Ishaq Dar has talked of Iran not wanting to finance the project. The fact remains that while Iran has completed its side of the pipeline, Pakistan has still to begin construction at its end. Asking Iran to provide finances for the pipeline comes across as a stalling tactic, and it is Pakistan that must focus on raising these. Meanwhile, the US and those in the world community who oppose the project must understand Pakistan’s predicament and not create any obstructions in the pipeline’s completion. For its part, Islamabad needs to take a clear, bold position on the pipeline and put all ambiguities about its future to rest.
The real reason?: QWP’s departure
THE grand promise to purge the KP government of corruption could turn out to be a mere political ruse to get rid of unwanted allies. The PTI has thrown out the two KP ministers belonging to the Qaumi Watan Party ending an uneasy and short-lived partnership. The QWP is determined to not go out quietly, and there are some who point out that the real reason for the split could be the difference of opinion on political issues rather than allegations of corruption. It may be no coincidence that the parting of ways came just a week before the PTI’s scheduled blocking of the Nato supply route. Even though the truth is difficult to get to amid a plethora of allegations and counter-allegations, opposition to the Nato blockade by a coalition partner, the QWP, could have made it awkward for the PTI-led government. Imran Khan appears to be confident he has the numbers on his side in a house in which the PTI has 53 members out of a total strength of 124. But the mathematics apart, his praise for the JI ministers following the QWP sacking is reflective of his desire to be with ideologically compatible friends.
When Imran Khan made the pledge to dismiss corrupt ministers earlier this week, questions were raised as to how he could assign the job to Chief Minister Pervez Khattak. As the head of the cabinet, Mr Khattak had been tasked to carry out an exercise that could stigmatise his government. Still, principally, Mr Khan’s statement was hailed. So much so that the more hopeful in the crowd hastily celebrated it as, even if partial, fulfilment of the PTI’s flaunted dream for change. That hope has since been tempered by the demands of realpolitik and the much-trumpeted campaign against corruption is liable to be seen as discriminatory. The PTI might ultimately move to inspect and clean up its own stables, but that’s for the future. For the moment it must brace itself for a counter-attack projecting it as an agent of no-change dressed in pious clothing.
Unclear move: Interest rate increase
WHILE increasing the cost of borrowing by 50bps to 10pc, the State Bank of Pakistan has in its monetary policy statement also raised market expectations of a further hike of 1-2 percentage points in interest rates by the end of the present fiscal. The bank insists that higher credit rates are necessary to maintain price and exchange rate stability. It, however, remains unclear how such a meagre increase will keep prices from spiralling up or the rupee from declining. The price inflation of the last four and a half months is the direct outcome of the government’s fiscal policies — increase in electricity tariffs, the resort to excessive indirect taxation, etc and external factors such as higher global oil prices. Similarly, the weakening exchange rate is linked to the fast declining foreign exchange reserves of external official and private flows and certain prerequisites of the new $6.6bn loan from the IMF. If the higher credit cost could successfully counter inflation and strengthen the rupee, the bank would not have hesitated to push the credit price substantially to, say, 11-11.5pc. Apparently, the decision has been prompted by IMF pressure prior to the disbursement of the second loan tranche of $550m.
Whereas the positive impact of higher interest rates is unclear, the SBP decision anticipates a significant surge in public debt, an increase in fiscal pressure on the budget, a reversal, albeit slight, in the recent uptick in private credit, and decline in fixed investment, etc. The tight monetary policy hasn’t been successful in tackling inflation or exchange rate volatility in recent years. Few expect it to pay off now. The government will have to revisit its fiscal policies to deal with the challenges — slow growth, high deficit, inflation, etc. And that will entail wide-ranging tax and expenditure reforms.