The government has decided to drastically cut subsidies to Rs166.5 billion in the new financial year, which is 58 per cent lower than actual spending in the outgoing year, indicating that electricity tariffs and sugar prices at state-run stores will increase significantly.
The government on Friday unveiled a Rs166.5 billion subsidy package in parliament compared to subsidies of Rs395.8 billion given in the outgoing financial year. But the fresh concessions are Rs40 billion or 31 per cent more than the allocation announced in the budget for 2010-11.
Of the total subsidies, Rs122.7 billion has been earmarked to subsidise electricity in the financial year 2011-12, which is 58 per cent lower than actual power subsidies granted in the outgoing year. But the major chunk of these subsidies will be utilised for payment of mark-up on loans borrowed to retire the inter-corporate debt.
In 2010-11, the government had allocated Rs84 billion for electricity subsidies, but actual subsidies swelled to Rs295.8 billion, which is 252 per cent or Rs212 billion more than the budgetary allocation.
Despite a drastic cut of Rs229.3 billion in subsidies, there is still a big question mark over the government’s ability to restrict these concessions, bearing in mind the record of the past two financial years.
In the fiscal year 2009-10, the government had allocated Rs120 billion in subsidies, but actually gave away Rs229 billion. In 2010-11, against total subsidies of Rs126 billion, the actual figure will come to Rs395.8 billion, a slippage of Rs270 billion or 214 per cent.
The government has assured the International Monetary Fund that it will phase out all electricity subsidies except for lifeline consumers, who use up to 50 units of electricity per month.
Subsidies to Wapda and Pepco
Out of Rs122.7 billion allocated for electricity subsidies, Rs50 billion has been earmarked for price differential for lifeline consumers. The amount is Rs188 billion less than the outgoing fiscal year’s subsidies that stood at Rs238.2 billion.
To pay electricity arrears of the Federally Administered Tribal Areas, the government has allocated Rs7 billion, which is Rs3 billion less than the outgoing fiscal year. On account of interest payments on Term Finance Certificates, which were issued to raise money for reducing the inter-corporate debt, the government will pay a huge sum of Rs55.7 billion, which is 40 per cent or Rs15.7 billion higher than the outgoing fiscal year.
For 2011-12, the government has extended Rs24.6 billion subsidies for consumers of Karachi Electric Supply Company. The allocation is Rs23.8 billion or 42 per cent lower than the outgoing fiscal year. Against an original allocation of Rs3.4 billion, the government gave away Rs47.4 billion subsidies to KESC consumers in 2010-11.
Utility Stores Corp
Subsidies for utility stores have been cut to half with an allocation of Rs2 billion against Rs4.2 billion in the outgoing year. The government has withdrawn Rs3.5 billion subsidies given on sale of sugar at these outlets. For Ramazan package, the subsidy has been increased to Rs2 billion from Rs700 million granted in the current fiscal year.
Subsidies for the Trading Corporation of Pakistan (TCP) on account of wheat import and export and cotton purchases have been eliminated. This year, the government has given Rs13.2 billion in subsidies under this head. It has only fixed Rs4 billion subsidy on sugar import. Total TCP subsidies stand at Rs4 billion against last year’s Rs17.2 billion, down by 76.6 per cent.
Published in The Express Tribune, June 4th, 2011.
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