In its maiden meeting, the Economic Coordination Committee (ECC) on Tuesday approved Rs68.7 billion supplementary grant to pay for the cost of providing the petroleum products at subsidised rates - a sum that the country cannot afford to bear any longer.
The Minister for Finance Dr Miftah Ismail chaired the first ECC of the Cabinet meeting and approved the Rs68.7 for disbursement of price differential claim (PDC) to the oil marketing companies (OMCs) and refineries for the month of April and to meet the shortfall for the month of March 2022, according to the Finance Ministry.
With the fresh approval, the total amount that the taxpayers have so far paid to get fuel at lower than its cost stands at Rs101 billion - which is more than the budget allocated for the health and education by the National Assembly in June last year.
The subsidy amount in April was more than the double sanctioned for the month of March, indicating that the political gamble by former Prime Minister Imran Khan was not economically sustainable.
Out of the approved sum of Rs68.7 billion for April, an amount of Rs33.7 billion was related to the last government’s period (March 1 to 15), which has left a big mess for the new coalition government, also having as bigger impact as eroding the PML-N’s political capital.
The former prime minister had announced the relief package on petroleum products on February 28, 2022. The package included a reduction in the consumer price of petrol and high-speed diesel (HSD) by Rs10 per litre and a commitment to keep the prices stable till the end of the fiscal year.
However, the ECC noted that the country cannot sustain to provide such huge subsidies and a decision will have to be taken to increase the prices.
Finance Minister Dr Miftah Ismail is leaving for Washington to begin talks for revival of the International Monetary Fund (IMF) programme that has already disapproved provision of subsidised petrol and diesel.
Due to the provision of subsidised fuel and electricity, the federal budget deficit is expected to hit Rs5 trillion in this fiscal year - for the first time ever.
Prime Minister Shehbaz Sharif allowed the continuation of Rs21 per litre subsidy on petrol and Rs51 per litre on diesel for the second half of April.
A source in the Ministry of Finance said that the process to gradually withdraw the subsidies would begin soon.
A cargo truck traveling between Islamabad to Karachi is availing Rs50,000 subsidy at current prices of diesel, said Ismail on Monday.
The ECC was informed that due to freezing oil prices at March 1 (2022) level, the rates of petroleum levy and sales tax on petrol and HSD have already been brought to zero.
Before holding the regular session, the government reconstituted the ECC after the new cabinet took oath. The ECC comprises minister for finance, minister for industry, minister for commerce, minister for national food security and minister for planning and development.
Oil prices have been increasing in the international market since September 2020, resulting in substantial increase in the consumer prices of petroleum products in the country.
The last government had initially worked out the subsidy requirements at Rs246 billion for both the electricity and fuel subsidies. However, the trend of the first two months of the subsidies showed that at the current rate only the fuel subsidies would amount to Rs238 billion.
The PDC of OMCs/ refineries in the amount of over Rs32.1 billion were estimated for the month of March 2022. This price differential was to be paid to the OMCs and refineries by the government as a subsidy.
The previous Pakistan Tehreek-e-Insaf (PTI) government had earlier approved Rs31.73 billion subsidy for OMCs and refineries for the month of March.
But the Oil and Gas Regulatory Authority (Ogra) said that due to the continuously rising trend of oil prices in the international market, the PDC for the first and second fortnights of April 2022 is projected to be Rs31.8 billion and Rs35.73 billion, respectively.
The Petroleum Division had moved a summary for the views of the Finance Ministry with a proposal to allocate Rs67.53 billion for the month of April 2022.
The Finance Division supported Ogra’s projection of Rs31.8 billion for the first fortnight of April 2022 and did not support allocation for the second fortnight due to lack of fiscal space.
Instead, last week the Finance Ministry had asked to increase the rates of petroleum levy and sales tax to lower the burden on the budget.
However, Prime Minister Shehbaz Sharif allowed to take the hit of Rs35.73 billion on the budget instead of increasing prices for the second fortnight of this fiscal year.
The Ogra has also informed that the amount of PDC provided through supplementary grant for the month of March 2022 has fallen short by Rs1.87 billion.
Published in The Express Tribune, April 20th, 2022.
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