Government plans to withdraw generalized subsidies

ISLAMABAD: With the establishment of a high power cell with the approval of PM Imran Khan for the reduction of all kinds of subsidies reaching a whopping amount of 400 billion rupees per year, the government is considering different options to withdraw the generalized subsidies and introduce a mechanism targeted to the extreme poor.

Almost 1 percent of GDP equivalent to Rs430 billion is provided in the form of recognized subsidies for different sectors, most of which goes to the cash-draining energy sector. There are certain liabilities that are accumulating such as the financing of raw materials which is another form of circular debt and the think tank set up by Prime Minister Imran Khan has identified that its circular debt is around Rs800 billion. A senior finance ministry official said the highway to identify the poor using BISP data is available, so the government is finding ways to eliminate blanket subsidies.

With the abolition of the mechanism, the electricity tariff will increase and rough estimates suggest that the government will have to increase the quarterly tariff by 15 to 20 percent.

The government plans to withdraw general subsidies from the electricity sector and will introduce a targeted mechanism. The government is considering various options, including withdrawing the general subsidy on 300 units of electricity.

It is planned to reduce the beneficiary slab by 50% by increasing it for existing users from 300 units to 150 to 200 units under the newly envisaged mechanism.

The withdrawal of subsidies will increase the collection of the electricity sector and help to improve its budgetary difficulties under the conditions of the IMF program.

List of governments want to reduce the electricity sector subsidy by 82 billion rupees, from 211 billion rupees in revised estimates for the last fiscal year 2019-20 to 129 billion rupees for the current fiscal year 2020 -2021.

There are two proposals under consideration, one is to introduce new slabs up to 150 users of units for the provision of targeted subsidies. Another proposal is to reduce users for beneficiary identification from 300 to 200 units per month. In the context of loans from the IMF and the World Bank, the reduction of subsidies to the electricity sector is on the agenda.

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