Energy subsidy cuts likely to be Rs375bn in 2024-25, as Islamabad aims at new IMF deal

Energy subsidy cuts likely to be Rs375bn in 2024-25, as Islamabad aims at new IMF deal


Move likely to produce adverse effects for consumers

  • The resultant increase in gas and power tariffs will sustain inflation and higher interest rates
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ISLAMABAD (Dunya News/Web Desk) – With the International Monetary Fund (IMF) sticking to the tough conditions it has been imposing on Pakistan like other developing countries, sources in finance ministry say the energy sector may witness a massive Rs375 billion subsidy cut in the next fiscal year.

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It means the electricity and gas tariffs will further be hiked for domestic consumers who are already crushed by a record high and persistent inflation.

At the same time, the unending series of increasing the energy prices have propelled the cost of doing business to a level where the many industrial units are finding it hard to sustain.

The state of affairs are further worsened by the interest rates hikes which has pushed the borrowing costs to 22 per cent.

Although the interest rates haven’t been hiked since June last year, but the State Bank of Pakistan’s policy to avoid rate cuts complicated the things for businessmen who are clamouring for reducing the borrowing costs.

The combination of higher energy tariffs and interest rates is responsible for the current economic as there is no expansion in the existing businesses nor any incentive for establishing new ones.

On the other hand, the planned subsidy cuts will obviously further fuel and sustain inflation, thus resulting in more delay in the vociferously demanded and much-awaited interest rate cuts.

However, Islamabad is desperate for another IMF deal, meaning that the government will have to accept the strict conditions set by the Washington-based lender. It includes privatisation of the lossmaking state-owned entities (SOEs), as the Islamabad is swiftly moving ahead for disposing of the national flag carrier – PIA – in first of the major transactions.

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As far as the details of the proposed subsidy allocations for 2024-25 are concerned, the sources say the total amount is estimated to be around Rs600 billion.

Further breakdown shows that the independent power plants (IPPs) will be among the beneficiaries while the power distribution companies (Discos) and K-Electric are also going to receive money under tariff differential and other heads.

Moreover, the consumers in Azad Kashmir and the erstwhile trial region [Federally Administered Tribal Areas (FATA)] will also continue getting electricity supply at subsidised rates along the tube-wells in Balochistan, which are used for agricultural purposes.

On the other hand, a chunk of the subsidy may also be reserved for K-Electric under the industrial support package.