The federal government on Thursday announced a Rs23 billion subsidy for the agriculture sector in a move that is likely to invite the International Monetary Fund’s scrutiny.
The decision was made at a meeting between Finance Minister Ishaq Dar, Punjab Chief Minister Shahbaz Sharif and the Kissan Ittehad Council (KIC) – a representative body for farmers – just 24 hours after the international lender approved a $6.7 billion loan for the country.
Talking to reporters, Dar said the government had decided to provide farmers electricity for powering tube wells at a flat rate of Rs10.50 per unit till June 30, 2014. The government, according to him, has decided to pick up the difference between the cost of power generation and the rates for farmers, which amounts to Rs23 billion. The finance minister further said the government would also have to bear a Rs6 billion loss in general sales tax following the move.
The IMF bailout comes with the condition that the government gradually eliminates subsidies for all power consumers using more than 200 units of electricity a month. The announcement of a new power subsidy hours after the loan was announced may invite scrutiny from the IMF.
However, a senior finance ministry official told The Express Tribune that the government did not lose anything after entering the agreement with the farmers’ community. He said the government had told the IMF that the electricity for tube wells would be sold at a rate of Rs9.75 per unit.
The finance minister, too, said the government’s decision “does not matter, since between 5pm and 11pm, the agriculture sector does not get electricity.” “It is unfortunate that the agriculture sector, which represents nearly a quarter of the economy, does not get benefits.”
The government has already eliminated subsidies for industrial consumers and is now moving on to minimum determined tariffs for commercial, bulk and Azad Jammu and Kashmir consumers, according to officials. For these categories, Pakistan has assured the IMF that it will increase average weighted tariffs by 50%.
For domestic consumers, the weighted average notified electricity tariffs will be increased by 30% with effect from October 1, they added.
The previous coalition government headed by the Pakistan Peoples Party had approved the flat rate of Rs8 per unit on March 7, 2013 – a move many termed a political gimmick. The then government, however, failed to finalise a mechanism for the payment of the subsidy, which had been estimated to cost around Rs16.5 billion per annum.
Before the PPP government’s decision, the farmers had been getting electricity at a flat rate of Rs10 per unit for tube wells.
Published in The Express Tribune, September 6th, 2013.