Govt defers Rs44b USC subsidy

Only kept Rs17 billion in budget, will now require grant approved by IMF

ISLAMABAD:

The government has once again pended a decision to provide a subsidy package of Rs44 billion to sell goods at state-owned stores, as it considered options that could reduce financial impact.

The Ministry of Industries, on Saturday, proposed three options that required Rs32 billion to Rs44 billion in annual subsidies to continue the subsidy on five essential items under the Prime Minister’s Relief Package during the current fiscal year, an official of the ministry told The Express Tribune.

However, the government has kept only Rs17 billion in the budget and will have to give a supplementary grant, which will be scrutinised by the International Monetary Fund (IMF). The options were presented before the Finance Minister Ishaq Dar.

According to an official of the Finance Ministry, Dar asked the Ministry of Industries to further rationalise the cost keeping in mind the concept of the targeted subsidies and the available fiscal space.

“The financial implications of the subsidy were also discussed in the meeting,” said a finance ministry statement. This is the second time the government has delayed making a decision. The matter will be discussed next week again.

“The finance minister directed the Ministry of Industries and Production to formulate a comprehensive model under which maximum relief may be provided to the least endowed segment on priority,” reads the statement.

In June this year, Prime Minister Shehbaz Sharif had instructed continuing the supply of subsidised wheat flour, sugar, oil, pulses and rice to the Utility Stores Corporation (USC). He also directed for the provision of cheaper wheat flour across the province of Khyber Pakhtunkhwa (K-P).

Fiscal space, however, does not allow these ventures and some of the instructions given by the PM’s office sometimes remain unimplemented.

The government is currently providing wheat flour at Rs50 per kg through the USC and is purchasing it at the cost of Rs52 per kg. This is causing an additional impact on the budget of nearly Rs1.4 billion per month. Sugar, which is sold at Rs70 per kg with a Rs21 per kilo subsidy, causes a fiscal impact of Rs525 million per month.

Similarly, cooking ghee and oil is sold at Rs300 per kg, with a subsidy of Rs114, which also requires a subsidy of Rs1.6 billion a month.

The industries ministry official said that the existing untargeted subsidy requires Rs3.6 billion every month, a total package of over Rs44 billion. According to the official,

there is gap of Rs27 billion that has to be filled if the subsidy is retained at the current level.

According to another proposal, the subsidy can be reduced to Rs32 billion in this fiscal year, if the subsidy on wheat flour is reduced to Rs37 per kg, sugar to Rs11 and ghee to Rs50 billion. But this will require an increase of Rs65 per kg in ghee price, Rs15 per kg in wheat flour and Rs10 in sugar prices, said the official.

This option could become politically pricy for the government but if not implemented, it will be economically unviable for Dar, who is trying to balance the books.

According to another proposal, the government can limit the subsidy to targeted people to reduce the monthly impact by Rs500 million. This option will still require Rs41 billion, including an additional Rs24 billion cash.

If the supply of the commodity is reduced by half, then the per month impact will be cut from the existing Rs3.6 billion to Rs2 billion. This will serve more people but their subsidised food intake will reduce by half.

At present, the government is giving maximum 40kg wheat flour every month to every household at the USC through an eligible CNIC, which according to one recommendation might be reduced to only 20 kg. Similarly, the five kg limit of sugar and wheat can also be cut to 3 kg.

The USC made a profit of only Rs700 million in the last fiscal year, as its expenses to sales jumped to 9.3% from 7.6% a year earlier. There are over 12,000 employees working at these stores that often open late but close even before 5pm.

The Ministry of Industry also sought clearance of Rs15 billion pending dues on account of subsidies already availed but not cleared by the Ministry of Finance.

The finance ministry handout stated that Dar was apprised of the prime minister’s relief package and subsidy being provided on five essential items. He was informed that good quality of flour, sugar, rice, ghee and pulses are provided to the masses across the country on subsidised rates.

“The present government is cognisant of the issues of the poor segment of society that needed maximum relief support,” he said. He further emphasised that providing relief to the poor is a priority and that the government was providing its utmost support to them.

Published in The Express Tribune, November 6^th, 2022.

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