Budget 2014-15: Subsidies and circular debt

Power subsidies to be reduced; circular debt not to be cleared.

KARACHI: In line with the International Monetary Fund's earlier recommendations, the 2014-15 budget sees a big reduction in subsidies.

From last year's spending of Rs340 billion on assorted subsidies, including power and other special relief packages, the government plans a drastic cut down to Rs203 billion.

But one would be advised to take that figure with a pinch of salt - given that the last budget only allowed the government to spend Rs240 billion on subsidies and it ended up spending Rs340 billion

Earlier on May 10,  IMF Mission Chief in Pakistan Jeffrey Franks had announced that the power subsidies would be reduced in the upcoming budget in order to to reduce the fiscal deficit.

In a joint press conference with Franks, Finance Minister Ishaq Dar had also said the government would not be clearing circular debt in the 2014-2015 budget, as it was piling up again due to low electricity bill recovery.



The graph above shows that between the 2013-14 budget and the proposed 2014-15 budget, subsidies have gone down by around 24%.

And circular debt dropped by approximately 50% in the 2013-14 budget from the 2012-2013 budget.



The graph above shows how in the revised 2013-2014 budget, subsidies went up by 24% as compared to the original budget. Meanwhile, circular debt went down by approximately 18% in the revised budget.

According to the budget 2014-15, the allocation for subsidies to WAPDA / PEPCO form a major component, which is 76.8% of the total allocation followed by subsidy to KESC with share of 14.3%.

A total estimate of subsidies for budget 2014-15 is 0.7% of GDP.

The following table is from the 2014-15 budget.