Govt plans Rs550bn fiscal adjustment

ISLAMABAD: The government is expected to propose in the next budget fiscal adjustment of about Rs550 billion for the financial year 2014-15 through a combination of revenue enhancement measures and expenditure control steps. A senior government official told Dawn that more than Rs230bn would be raised through gas and electricity tariffs under the fiscal consolidation program­me agreed with the International Monetary Fund (IMF). Pakistani authorities are at present in Dubai to finalise various budgetary measures in consultation with an IMF mission as part of the third review of the $6.78bn bailout package. A successful completion of the review will lead to disbursement of $550 million in a couple of weeks. The official ruled out the possibility of an increase in electricity tariff before September because of the prevailing electricity shortage even though the government had to generate about Rs120bn through the power sector in the next fiscal year. “In a political economy, you cannot afford to increase power tariff when voters are suffering from long hours of loadshedding in sizzling temperatures,” he said. The situation would come under control between July and September and the government would withdraw more subsidies and increase tariff for a few categories for cross subsidisation after that period. Another Rs135-150bn, the official said, would be saved by withdrawing statutory regulatory orders (SROs) in the budget. The government has committed to phasing out the SROs of about Rs480bn in three years and introducing a law which will bar issuance of SROs in future. The official said Finance Minister Ishaq Dar wanted to withdraw most of the SROs, but the political leaders were not prepared to deal with withdrawal of more than one-third of them because of pressures from businessmen in their constituencies. The government has already given the IMF an undertaking that it will cut expenditure by up to Rs130bn through reduction and rationalisation of subsidies, particularly those relating to power tariff. “In the context of the 2014-15 budget, we will further rationalise subsidies by roughly 0.4 per cent of GDP,” Finance Minister Dar wrote to the IMF. The government is in the process of sharing with the IMF the third round of three-year subsidy rationalisation plan to bring tariff to cost recovery level, including incorporation of financing cost of past loans into consumer tariff. The IMF was of the opinion that an increase in gas infrastructure development cess (GIDC), coupled with higher-than-envisaged quantities, was expected to deliver about 0.36pc of annualised GDP in additional revenue. The government said it had already reached about 0.4pc of GDP with a recent notification issued after the Supreme Court rescinded a stay order against GIDC, thus helping the government to actually retrieve the tax for the full financial year. The IMF recently said the government would have to move beyond GIDC to rationalise gas tariff so as to depict true cost of imported gases and development of unconventional gases like shale and tight gas. Mr Dar made a commitment to the IMF that the government would “continue to work on a comprehensive gas price rationalisation plan”. This has also been necessitated by about 300pc increase in gas production prices allowed under the recently announced petroleum exploration policy and also to factor-in expected import of liquefied natural gas (LNG) later this year whose cost is expected to be more than 500 times more than the current domestic production prices. “As new production and additional gas supply from imports come on line, the cost of this gas will be fully reflected in the base tariff on a semi-annual basis, beginning with the next adjustment in end-March 2014,” Mr Dar said in his letter to the IMF.