In a surprising move, the cash-strapped PML-N coalition government has decided to increase the overall allocation for subsidies by 2.5% from the Rs682 billion in the fiscal year 2021-22 to Rs699 billion in the fiscal year 2022-23. This, however, is still less than half of what was spent in the outgoing fiscal year.
A closer look at the allocations, however, shows where the government has decided to spend and where it intends to impose budgetary cuts, a private TV channel reported.
By far, the largest chunks of the subsidy will go to power utilities, with the government forking out nearly a trillion rupees in the last fiscal to keep power tariffs low. Budgetary documents showed that the government had budgeted to provide the Water and Power Development Authority (WAPDA) and Pakistan Electric Power Company (PEPCO), will receive a whopping Rs275 billion in the next fiscal year. This is up from the Rs257 billion allocated last year.
This money was spent mostly to pay independent power producers (IPPs). Last year, the government had allocated Rs136 billion for the sector but ended up paying some Rs434 billion. This year, it has allocated Rs180 million for the sector.
In Karachi, K-Electric will receive Rs80 billion as a subsidy, slightly down from last year when it got Rs85 billion.
Further, some Rs215 billion will go to PHPL and private power producers. This, however, is down from the Rs254 billion they were provided last year.
The breakdown shows that PHPL received Rs118 billion last year and it stands to receive only Rs35 billion this year. The government has decided to stop paying Rs4.4 billion in tariff differential for agri-tubewells in Balochistan.
Similarly, the government will not pay Rs7.6 billion for power in the erstwhile federally administered tribal areas. While the government aims to release Rs50 billion as an advance subsidy, it has made no allocation to continue it in the new fiscal year.
In the petroleum sector, the government has decided to enhance the subsidy allocation by 255% from Rs20 billion last year to Rs71 billion in the upcoming fiscal year.
The increase comes in the wake of the exponential increase of 1,785% in expenses in this sector with the government ending up spending Rs377 billion so far this fiscal year.
A breakdown showed that the government enhanced subsidy spending on the Liquefied Natural Gas (LNG) sector in order to provide gas to industry on lower prices. It had allocated Rs10 billion for this sector at the start of the year but ended up spending Rs81 billion.
The government has now decided to allocate Rs40 billion in this sector, a change of 300%. Moreover, the government gave domestic consumers a subsidy of Rs36 billion last year, none of which was budgeted for.
Elsewhere, the government has focused on easing the impact of inflation on the public by increasing the allocation of the Utility Stores Corporation from Rs6 billion last year to Rs17 billion in the upcoming year.
This includes Rs5 billion for the Ramazan package and Rs12 billion under the PM Package. By contrast, last year the government had allocated Rs6 billion for the Ramazan package but ended up spending Rs8 billion. Under the PM package, the government had not allocated any sum but ended up spending Rs13 billion. Similarly, it has decided to more than double the subsidy for fertilizer plants from Rs6 billion last year to Rs15 billion in the next year.
The government has also decided to give Rs6 billion in subsidy for importing urea. The subsidy for the metro bus projects was also quadrupled, from Rs1 billion last year to Rs4 billion in the next year.
The government also decided to enhance the allocation for the old Benazir Income Support Program (BISP). From Rs246 billion allocated last year, the government has decided to add another Rs100 billion to increase its allocation to Rs360 billion.
To be able to keep the volume of subsidies low, the government has decided to massively cut the subsidy for the Naya Pakistan Housing Authority and the Mark-up Subsidy for Naya Pakistan Scheme. Both projects will receive only Rs500 million each in the upcoming fiscal year. The former, however, will see its total cut from Rs30 billion, while the latter will see its total cut down from Rs3 billion.