Few words were used more than argeted subsidy in the budget speech delivered by Finance Minister Hafeez Sheikh on Saturday. A peek into the budget document, however, reveals nothing in this regard, except the Benazir Income Support Programme.
The new finance minister also told the parliament that this budget is one based on
ealism, which also ensures transparency. The subsidy portion of the budget document, however, suggests otherwise.
The budget document fails to mention any subsidy on imported urea, which in other words means that the subsidy on urea import has been eliminated.
Though the abolition of subsidy on imported urea was pretty much a known fact well before the announcement of the budget, something smells fishy; the finance ministry doesn mention this account in FY11 budget document, which otherwise should be compared with subsidy allocations in the outgoing fiscal year.
Not only does this undermine the importance of a policy amendment of such significance, it also defies transparency, as no one would ever come to know the revised amount used for urea import subsidy in the FY10 budget. In addition, the elimination of fertilizer subsidy would naturally result in a massive surge in domestic urea prices. It would have been justified had there been an allocation of a targeted subsidy for the affected farmers - but there isn any, which leaves farmers at the mercy of local manufacturers who would raise product prices to as much as the imported price.
Pakistan would be importing urea for most part of FY11, as new capacities are still far off from today. Such a massive increase in urea prices would not help much in achieving the targeted agricultural yields, as farmers economy will be adversely affected in such a case.
The budget document also fails to shed any light on feedstock gas subsidy, which should have been eliminated, keeping in mind the idea of diverting the subsidy from the rich to poor. One however hopes that, feedstock gas subsidy will be removed, once, gas prices are revised by Ogra, come July 1.
Moreover, the allocated subsidies for power sector seem quite unrealistic, given that circular debt is expected to persist next year as well.
And the government acknowledges that, as it has allocated some Rs40 billion on account of interest rate payments on power sector TFCs.
However, with line losses of both Wapda and KESC at previous years levels, higher electricity tariffs would result in lesser collection from consumers, which would most likely swell the circular debt. There certainly seems less
ealism in this allocation, in contrast with the ministers comments. The fact that refineries continue to get huge subsides of Rs10.8 billion on account of deemed duty, tells nothing about targeted subsidy. The notion of diverting subsidies from rich to the poor has no place on pampering refineries for adding nothing but burden on the end consumer.
Surely, there still is a long way to attain the so-called level of realism and providing argeted subsidy.
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KEY POWER SECTOR SUBSIDIES
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Rs (bn) Budgeted Revised Budgeted
FY10 FY10 FY11
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Wapda 62.9 147 34
Inter-Disco Tariff differential 10 77 30
Interest on TFCs 30 40 40
KESC 3.8 32.5 3.3
KESC on account of Tariff differential 2 31.7 2
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Source: Finance ministry
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