Budgeted subsidies: far from reality

“We gave more than Rs20 billion in subsidy to avoid passing on the petroleum price increases,” said Finance Minister Ishaq Dar in the budget speech yesterday. They did not!! The budget documents following his speech show nothing under this head. The Rs20 billion he is trying to portray as subsidy is actually the revenue forgone under the Petroleum Levy account.
Coming to the point – the relentless budget speech had no mention of subsidy allocation. Maybe, Dar feared that his IMF bosses were listening The government has time and again promised to do away with blanket subsidies and last year’s budget speech was full of promises that the amount allocated for subsidy would not be exceeded.
As it turns out, the budgeted amount has been exceeded for the fifth year running – by a healthy sum of Rs83 billion. Bear in mind that 96 percent of subsidies go to the power sector. Recall that Dar in the dying days of FY13 made bankers work hard on a Saturday to clear the circular debt. That followed with a power tariff rationalization, which the government believed was adequate, but this column maintained that it would never suffice.
The massive overrun of subsidy allocated tells that either that tariff rationalisation was not enough as feared by many experts, or the power sector is still in a mess or both. A year gone by, the circular debt teases Dar with all its might and there are no hints thus far that another round of tariff rationalisation is in the near-term plans.
So why deliberately understate your expenditures when you are almost certain you would run them over by good measure.
One wonders whether this is also part of Dar’s strategy of ‘keeping pressure’ as he said in the Economic Survey presentation. Surely, the government would not dole out another Rs400 billion to ‘resolve’ the circular debt. With no reforms in sight – the subsidy is sure to exceed the budgeted amount come next year.
It would be too naive to think that the IMF can be fooled by these tactics. A much better strategy would be to accept the shortcoming in the power sector, allocate the right amount, instead of portraying that you are gradually doing away with subsidy.
And as footnotes – did you know that subsidy on import of urea is a development expenditure? Well – it is. Don’t ask us why and how because we are equally dumbfounded. Talk about accountants and the art of number juggling!

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SUBSIDIES

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Rs (mn)      2012-13 B    2012-13 R    2013-14 B    2013-14 R    2014-15 B

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Wapda/Pepco    134970      264970       165100       245100         156100

KESC            50317       84317        55000        64317          29000

USC              6000        6000         6000         6000           7000

Passco           5148        6194         9000         6500           8000

Others          12150        5991         5334         1103           3148

Total          208595      367472       240434       323020         203248

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