PM Imran’s relief measures to cost Rs237bn in four months

Published March 1, 2022
People listen to Prime Minister Imran Khan addressing the nation on television at a market in Karachi on Monday. — AFP
People listen to Prime Minister Imran Khan addressing the nation on television at a market in Karachi on Monday. — AFP

COUPLED with a cut in the development budget and savings in other expenditures, it will cost the government around Rs237 billion during the four months through June to absorb the impact of relief measures announced by the prime minister on Monday.

The key components of the relief measures announced by the prime minister included a Rs10 per litre reduction in petrol and diesel prices, Rs5 per unit cut in electricity rates, besides internships and scholarships and tax concessions for industries.

Officials involved in finalising the policy measures for the prime minister’s speech told Dawn that the financing cost of the relief package would be met through four avenues. These include a reduction in development expenditure, diversion of dividends of government-owned corporate entities, unspent funds out of $1.4bn emergency support extended by the International Monetary Fund (IMF), and a cushion provided in the Rs550bn mini-budget announced by the government in December.

On the other hand, these measures would not impact the fiscal deficit limit of 6.9 per cent estimated under the IMF programme in the wake of an increase in the GDP size following a recent rebasing exercise.

A spokesperson for the finance minister, Muzzammil Aslam, said he was unsure how the IMF would respond to the relief measures, but it should have no objection because “we are not going to increase fiscal deficit” and make adjustments in expenditure while staying within the limits.

He said the total impact of the package was estimated at about Rs250bn that would be net off within the budget.

Another official said the finance minister had already announced about a Rs33bn cushion in the budget in his December’s mini-budget speech. There were some higher-than-estimated revenue collections on account of withdrawal of GST exemptions.

He said the impact of Rs10 per litre reduction in petrol and diesel prices would mean a monthly impact of about Rs15bn based on average sales of about 1.5bn litres. This works out at Rs60bn in four months.

In case of increase in international prices, the impact would go up and may resultantly jack up the overall financial impact to Rs250bn.

An increase of $1 per barrel in global oil prices roughly works out at Rs1.20 per litre in domestic price. He said there were hopes that international oil prices would come down in the near future if progress is made on Iran’s nuclear talks and Russia-Ukraine talks.

Likewise, the Rs5 per unit cut in electricity rates would be covered through funded subsidy worth about Rs17.5bn per month and would be extended to consumers falling in the second to fifth categories (or those generally consuming 200 to 500 units per month).

The lower slabs are already called ‘protected’ through an existing subsidy. This translates into Rs70bn for four months. The cumulative impact of petroleum products and electricity relief would thus come to about Rs130bn.

Another Rs93bn financial impact is assumed against a revenue loss on account of non-recovery of petroleum levy and lower GST on petroleum products. These three heads work out at about Rs223-225bn.

The major cushion was already available within the Ehsaas Ration Programme envisaged at Rs120bn, but since its rollout was still in the testing phase, a major portion would move into the next fiscal year.

Officials said the government had earlier considered providing a direct subsidy on petrol to users of rickshaws and motorbikes but the idea was opposed by the finance ministry because of greater chances of pilferage.

Energy Minister Hammad Azhar said the fuel cost adjustments incurring on electricity bills due to higher imported fuel costs would be absorbed by the government for residential and commercial consumers, whereas petrol and diesel price cuts would be adjusted through a reduction in petroleum development levy in the short term and then by a funded subsidy.

A senior energy ministry official said the petroleum levy had been brought down to zero on all products except petrol where it now stands at Rs1.81 per litre.

Instead, the government would now provide price differential claims (PDCs) to oil companies at the rate of Rs2.28 per litre on high-speed diesel (HSD).

As of now, per-litre petroleum levy was Rs17.92 on petrol and Rs13.30 on HSD. Therefore, oil marketing companies will take a hit of Rs2.2bn per month on HSD that would be refunded to them by the government at a later stage. A well-thought-out process would be developed by the petroleum division and the Oil and Gas Regulatory Authority (Ogra) for PDC.

Meanwhile, the finance ministry notified the price cut and fixed the ex-depot sale price of petrol at Rs149.86 per litre instead of Rs159.86.

The per-litre ex-depot price of HSD has been reduced to Rs144.15 from Rs154.15, that of kerosene by Re1 to Rs125.56, and that of light diesel oil by Rs5.66 to Rs118.31.

The finance ministry said an “unprecedented increase” in international prices above $100 per barrel was risky for the domestic fuel prices and inflation. “The situation leaves very few options for the government” as the government had left Rs70bn per month in lost revenue on petroleum products while Ogra had recommended Rs10 per litre increase in the petroleum products’ prices for next fortnight.

Published in Dawn, March 1st, 2022

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