Power package

EDITORIAL: The Federation of Pakistani Chambers of Commerce and Industry (FPCCI), Korangi Association of Trade and Industry (KATI) and Bin Qasim Association of Trade and Industry (BQATI) have urged the government to revisit the Prime Minister’s proposed incremental package and reduce the incremental tariff from rupees 22 kWh to rupees 16 kWh.

The request for a reduction in electricity cost is premised on the fact that all previous governments provided this incentive to the industrial sector at the taxpayers’ expense as a means to jump start growth.

However, the current International Monetary Fund’s ongoing programme documents dated October 2024 correctly argued that “subsidies have taken the form of low-cost financing and other concessions, which although varied across industries, left financing and taxes net of subsidies more favourable than in peer economies and less-favoured sectors.”

The tax system has been extensively used to provide non-transparent support through exemptions for privileged sectors like real estate, agriculture, manufacturing, and energy, as well as, through the proliferation of Special Economic Zones.

The government’s intervention in price setting, including for agricultural commodities, fuel products, power, and gas (biannual), combined with high tariff and non-tariff protection tilted the playing field in favour of selected groups or sectors. Despite all this support, the business sector has failed to become an engine of growth, and the incentives eventually weakened competition and trapped resources in chronically inefficient (including perpetually “infant”) industries.

This astute observation by the Fund led to the programme condition to achieve full cost recovery in utilities, with particular emphasis on the appallingly poor performance of the power sector, with the economic team leaders’ concurrence. In effect, it is highly unlikely that the government would be able to convince the Fund team to abandon this condition and needless to add failure to convince the Fund may lead to a suspension of the programme followed by bilaterals, including the three friendly countries, refusing to extend the rollover/loan repayment duration — loans which are almost entirely propping up the country’s existing foreign exchange reserves.

There is also overwhelming evidence that the stated objective of relevant members of the cabinet, notably that growth must be private-sector-led, is not being met, given that credit to private sector was estimated at a low of 121.8 million rupees 1 July to 12 October 2025.

While this is an improvement from the same period of last year when credit to private sector registered negative 260.6 million rupees in July-October as per the Finance Division; however, the total for the year was estimated at 1081.6 million rupees though reports suggest that the bulk was not used for output.

There are also reports of a number of foreign companies packing up and leaving the country, while foreign direct investment has plummeted by 55.5 percent in September 2025 compared to the same month in 2024. Portfolio investment was negative 64.5 percent July-September this year even though the discount rate was at 11 percent, one of the highest in the world.

While the Fund’s condition to implement severely contractionary monetary and fiscal policies continue, with an anti-growth bias, yet what is disturbing is the fact that the government has not opted for a massive reduction in its own current expenditure. That is the only way out for the government, as a reduction of its own expenses would reduce the current heavy reliance on tax revenue that the general public is finding increasingly hard to pay — a fact indicated by the rising poverty levels in the country.

Copyright Business Recorder, 2025