Government subsidy plan under scrutiny

The chances of finalising the ninth review of the troubled $6.5 billion Extended Fund Facility (EFF) from the International Monetary Fund (IMF) soon got bleak after the global lender on Monday raised questions over the government’s new fuel subsidy scheme.


The development came as the government decided to dole out subsidies worth billions of rupees on petrol as well as Rs, 73 billion on wheat flour that could potentially lay landmines in the path of the Fund’s programme.

Instead of putting its house in order, the government announced Rs, 50 per liter subsidy for owners of up to 800cc cars and motorcyclists while Khyber-Pakhtunkhwa and Punjab will give Rs, 73 billion in wheat flour subsidy cumulatively.

Sources in the finance ministry said that the global lender has inquired about the source of financing of the Prime Minister’s petrol scheme. The IMF also asked about the mechanism in implementing the new subsidy programme, they added.

She added that the IMF staff was seeking “greater details on the scheme in terms of its operation, cost, targeting, protections against fraud and abuse, and offsetting measures, and will carefully discuss these elements with the authorities”.

“As a general matter, the IMF sees strengthening support for those eligible for social assistance through the unconditional Kafalat cash transfer scheme (BISP) as the most direct way to help the neediest in Pakistan,” said Esther.

The federal government plans to collect Rs50 per liter extra from car owners of above 800cc category and give it to car owners of below 800cc and motorcyclists.

PM Shahbaz:

Prime Minister Shahbaz Sharif has the audacity to waive taxes of the richest commercial banks last month and also withdrew Rs3,000 per month tax on traders in September last year but wants to penalise middle-income group owning 1,000cc cars to fund his political scheme.

The IMF raised queries a day after the Prime Minister’s Office announced to give Rs, 50 per liter subsidy to the 1.3 million owners of 800cc cars and over 20 million motorcyclists and rickshaw owners.

The move may jeopardise the IMF programme, if the government’s explanation remained short of the Fund’s expectations.The chances of an early IMF deal are already thin due to many political moves made by the government and its inability to raise $6 billion additional loans.

While addressing a news conference on Monday, Minister of State for Petroleum Musadik Malik said that the government will charge Rs100 more for petrol from the affluent so that relief could be provided to the low-income segments in fuel tariff.

The government considers an owner of 1,000cc car “affluent” but it does not have the guts to slap taxes on the richest landlords and retailers.

Government Plan:

The government plans to increase the per liter petrol price from Rs273 to Rs323 for car owners who use vehicles above 800cc to assist the PML-N and its associated parties in winning the next general elections.

Due to fears that PTI Chairman Imran Khan will clean sweep, the government is dragging its feet from holding the elections and has now placed its bets on the middle- and upper-middle income groups to lure votes from the lower-middle income groups through such schemes.

In the words of a senior PML-N party leader, the cross-fuel subsidy is a double-edged sword for the government.

The state minister explained that an escrow account will be opened with the National Bank of Pakistan and the dealers claims of subsidised fuel will be settled on a daily basis.

He added that the beneficiaries will be registered against the national identity card numbers who will receive a one-time-password to claim the cheaper fuel.

A motorcyclist will receive a maximum 21 liter per month cheaper fuel with a daily cap of 3 liter while an 800cc car owner will get a maximum 30 liter per month of petrol, said Malik.

Malik declared that he would implement the petrol subsidy program within the next six weeks without paying any subsidies from the budget.

Flour subsidy:

On the instructions of the Prime Minister, the two provinces have also rolled out a free wheat flour scheme in Khyber-Pakhtunkhwa and Punjab. The sources said that the cumulative cost of the subsidy will be Rs73 billion per month in the two provinces.

The government will allocate Rs53 billion for Punjab and require an additional Rs19 billion for Khyber-Pakhtunkhwa, a province that is already experiencing financial difficulties and is incapable of providing subsidies.

“The Rs73 billion spending might jeopardise the recently agreed fiscal framework with the IMF, which requires Rs559 billion provincial cash surpluses,” said the Finance Ministry sources.

On the basis of the Rs559 billion cash surplus, Rs465 billion or 0.5% primary budget deficit target had been agreed upon with the IMF just last month.

The sources said that K-P had informed the prime minister that it did not have the entire Rs19 billion funds to finance the free wheat flour scheme. The plan is to give free wheat flour to 5.7 million families in the province.

Punjab Finance Department:

An official of the Punjab Finance Department said that the provincial government will honour its commitment given to the IMF. He said that although the maximum estimated cost is Rs, 53 billion, it may not go that high. He said currently the provincial government bears about Rs, 30 billion a month wheat flour subsidy.

Recently, the untargeted subsidy has ended by increasing the released millers prices to the level of support price to end the general subsidy, he added.

The provincial government is paying Rs, 90 billion annual mark-up on the Rs, 575 billion debt taken for wheat operations in Punjab, which has become unsustainable. He said that the general wheat subsidy was financially unsustainable and will be removed and target subsidy will continue henceforth.

About 15.8 million households will benefit from the free wheat flour scheme.

Published on Logical baat, March 21,2023.

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