ISLAMABAD: The government and International Monetary (IMF) are said to have agreed on reducing power subsidy by 45 percent to Rs 300 billion from July 2023 onwards to protect vulnerable segments from the existing subsidy of Rs 550 billion earmarked for 2022-23, well informed sources told Business Recorder.
This understanding, sources said, was reached during recent negotiations between Pakistani authorities and IMF Mission, which has left for Washington without declaring the ninth review a success.
The government has to do away with untargeted subsidies including unfunded Rs 100 billion approved for five zero-rated sectors. The government is supplying electricity to the five zero-rated sectors at Rs 19.99 per unit all-inclusive despite opposition by the Fund. Industrial Support Package (ISP) will also have to be readjusted. The IMF, sources said, came down very hard on the government’s failure to reduce losses, and improve recovery of receivables as per the agreement.
Pakistani authorities had assured IMF that recovery will be around 94 percent, but in fact it remained less than 90 percent. Transmission and Distribution losses were higher than 17 percent against the commitment of 15.83 percent.
No official announcement on IMF programme made yet
The authorities have also been quizzed for extending subsidy of Rs 281 billion to K-Electric (KE) sans budget allocation, which is increasing circular debt stock. According to Finance Minister Ishaq Dar, total cost of electricity per annum is Rs 3 trillion of which recovery is just Rs 1.8 trillion, which implies that there is a gap of Rs 1.2 trillion. The government earmarks about Rs 550 billion in budget as subsidy whereas the remaining amount goes to circular debt.
The government has assured IMF that flow of circular debt will be stopped with new policy measures aimed at bridging the gap of Rs 1 trillion and if this gap is filled with increase in tariff, the tariff would have to be raised by about Rs 10 per unit from next fiscal year.
Some officials maintain that the government is unlikely to increase tariff by over Rs 5.50 per unit including rationalization of base tariff from fiscal years 2023-24 as Rs 10 per unit would have massive negative impact on electricity consumption and would further encourage theft.
The government has also decided to impose surcharge of Rs 3.39 per unit across the board for those consuming over 300 units monthly till June 2023 to recover over Rs 76billion aimed at bringing down the flow of circular debt of Rs 2.6 trillion as per understanding with International Monetary Fund (IMF).
Copyright Business Recorder, 2023
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