KARACHI: The government is reducing its targeted subsidy balance by 54% YoY to Rs699 billion for FY23. The subsidies granted to Independent Power Producers (IPPs) and Pakistan Holdings Private Limited (PHPL) will reduce by 59% and 70%, respectively.
The previous year had a higher base because of the clearance of IPPs payment as part of the deal to revise down the tariffs.
The tariff differential subsidy of Rs80bn as part of PM’s relief package will be withdrawn. The Industrial support package on the incremental use of electricity will reduce by 53% to Rs7.0 billion.
Notably, Price Differential Claim (PDC) will be phased out entirely as against nearly Rs400 billion claimed in FY22. This is in-line with the government’s target to re-implement PDL into the petroleum pricing structure.
The LNG subsidy will reduce by 51% to Rs40 billion, suggesting higher prices for the export-oriented sector. Subsidies for the import of urea will increase to Rs6.0 billion, suggesting potential import of 42kT of urea at current prices.
The government has also unveiled plans to trim overall subsidies to Rs699bn in FY23 from Rs1.5trn in FY22. Key here is a planned reduction in power tariff subsidy by 72% for WAPDA and 4% for K-Electric, where power subsidies contribute about half of overall subsidy expense.
To achieve the desired growth, government has earmarked Rs727bn for Total Federal Development Expenditure, albeit lower than previous year’s budget numbers but 32% YoY higher than FY22 revised allocation targets. We highlight PSDP disbursement by Mar-2022 accumulated c.to Rs300bn.
The growth is targeted in Federal Ministries/Divisions segment (+38% YoY), which accounts for 78% of the Federal PSDP.
Moreover, Rs118bn (+37% YoY) has been allocated to National Highway Authority for the construction of motorways and bridges.