ISLAMABAD: On Wednesday, the Cabinet’s Economic Coordination Committee (ECC) approved, in principle, the first phase of the subsidy rationalisation programme, with an expected annual savings of around Rs488 billion.
Two other crucial issues were postponed by the meeting chaired by Finance Minister Hafeez Shaikh: import of additional 380,000 tonnes of wheat and Karachi Transformation Programme Rs739bn.
The ECC generally accepted the proposed first phase of the rationalisation strategy for subsidies submitted by Dr Waqar Masood Khan, SAPM’s Subsidy Cell on Revenue, which indicated that the introduction of the proposed steps might generate annual savings of approximately Rs488bn. During the first step, Dr Khan discussed energy, food and national savings in his presentation.
The ECC appreciated the thorough plan and its numerous components and directed concise summaries of clear and realistic suggestions as needed under the business rules indicating a way forward for particular divisions, power, national food security and finance.4
String of small supplementary grants also approved
The presentation shows the expense at approximately Rs5.2 trillion of all current, coming due and secret subsidies and contingent liabilities and transfers and projected gross subsidies of approximately Rs2tr per annum. It was clarified that in the absence of sufficient returns, substantial quantities of past deposits, grants, guarantees and uncovered borrowings still constituted real and future losses for the government.
As such, by the end of FY20, the overall stock of such obligations and subsidies was set at Rs5.2tr, roughly one-fourth of the domestic debt.
In the context of a lower return on equity for public sector power projects, including hydropower and nuclear power plants and Gencos, part of the first step of the rationalisation programme has also been put in motion. The proposal indicated that energy subsidies should be provided to low-income customers through the Ehsaas Scheme, starting with the Islamabad Electric Supply Company.
Industry subsidies can be targeted, with effect from 1 July 2021, by withdrawing the industrial support package of Rs3 per unit. By June 30, 2020, the assessment of arrears and resolution of disputes with industries will be finalised. Which is expected to slash the subsidy by about Rs75bn.
As the case could be to minimise the federal burden by another Rs50bn, regional governments will be required to share 50pc of the cost of subsidies to be given to their domestic customers or other consumers. Azad Kashmir and ex-Fata customers, including Rs27bn, will be subject to the Nepra approved tariff. A standardised electricity tariff is proposed to be filed by the Power Division on behalf of all Discos to eliminate tariff differential subsidies.
Priority berthing was also addressed during the meeting for imports of wheat and sugar. The forum on the current status of the wheat vessels and the activities of the Karachi Port Trust and Port Qasim Authority was updated accordingly by the Minister for Maritime Affairs.
The chair instructed the ECC’s Logistic Committee to be headed by the Minister for Maritime Affairs to perform SOP workouts to ensure that all stakeholders, including the private sector, are on-board with a priority berthing comparison.
A review of the supply of additional quantities of wheat to the government of AJ&K (80,000 tonnes) and Utility Stores Company (300,000 tonnes) and the import of 380,000 tonnes of wheat was presented by the Ministry of National Food Security and Science.
As an interim arrangement to ensure a smooth supply of wheat across the country, Dr Shaikh directed to prioritise the first load of the additional quantities to both AJ&K and USC.
The sources said additional imports were resisted by the Commerce Division, saying the booked ships will continue to pour in until March, followed in a few weeks by fresh crops. It was then agreed that the comprehensive plan would be presented at the next ECC conference.
The new Re-lending Strategy 2020 presented by the Economic Affairs Division has been approved by the ECC, which will incorporate adjustments in government borrowing costs, take account of exchange rate volatility and pass on the real prices to the borrower for clarity. Other terms and stipulations will continue to exist, even with respect to the repayment of the commitment fee, as in the policy in vogue.
The ECC also issued the International Finance Corporation clearance for the issuance of offshore rupee related bonds (IFC). This would continue to make funds accessible to target markets, encourage private sector participation and in the post-Covid scenario, add foreign exchange liquidity to the domestic foreign exchange market.
The ECC also accepted approximately six Rs1.669bn technical additional grants, including Rs219.300 million for the operationalization of the recently founded Isolation Hospital and Infection Treatment Centre, Islam-abad, Rs305.462m to pay Pakistan’s annual donation to the World Health Organisation, Rs106.775m to the ICT Administration for various programmes, Rs706m for Fata, temporary relocation of pp.