Despite federal government's pledge to reduce power sector subsidies, it surpassed the annual target which reached notable level of Rs 136.5 billion in the first nine months of fiscal year 2010-11. Sources told Business Recorder on Tuesday that in the initial months of past fiscal year, the government was willing to reduce power base subsidies.
However, the spending of power subsidies reflect that it seems difficult for the government to minimise the power subsidies due to rising energy shortage. Under the agreement with International Monetary Fund (IFM) the federal government had agreed to phase out the power subsidies by increasing power tariff.
Though the government had pledged to reduce power sector subsidies, power subsidies reached Rs 136.5 billion as of March 2011, against a full-year target of Rs 126.7 billion, surpassed by Rs 10 billion, while it is expected that end of fiscal year 2010-11 total spending of power sector would cross Rs 150 billion mark, they said.
According to the central bank, with a decline of 3 percent or Rs 10.3 billion, the development spending stood at Rs 352.7 billion in the first nine months of fiscal year 2010-11, compared with Rs 364 billion in corresponding period of fiscal year 2009-10.
Development spending during the first nine months of FY11 was not only below target, but also less than the expenditure during the corresponding period of previous year. The original budget for development was Rs 740.1 billion. However, when the floods hit in August 2010, the government decided to re-allocate development funds to disaster management and rehabilitation activities.
The State Bank statistics also showed that defence expenditures had also surged to Rs 335.1 billion in July-March 2011 as against Rs 269.8 billion in same period of previous fiscal year, depicting an increase of 24 percent in first nine months. Although this strategy helped the government cope with the unexpected shock, it had adverse implications for investment in productive capacity of the country.
Loss-making public sector enterprises continued to be a significant drag on fiscal resources and had been eating billions of rupees government revenue. The poor financial health of Pakistan Railways resulted in injection of Rs 25.1 billion during Jul-Mar 2011 which was higher than the budget allocation of Rs 21.9 billion for the entire year. Likewise, the government was paying a mark-up on commercial loans acquired by Pakistan Steel Mills and PIA.
In overall terms, provision of grants to Pakistan Railways and mark-up to PIA and Pakistan Steel Mills constituted 1.6 percent of current expenditure, or 0.2 percent of GDP, during July-Mar of FY11. It is therefore critical to push the re-structuring of these PSEs to stop haemorrhage. One key development is the transfer of resources from the Federal Government to provinces following the NFC award. This shift was clearly reflected in the rising share of provinces in total expenditure from 28 percent in third quarter of FY10 to 32 percent third quarter of FY11.
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