Finance minister says economic situation ‘worse than anticipated’, no fiscal space available for subsidies

As the country continues to brave rising inflation, interim Finance Minister Shamshad Akhtar on Wednesday warned that Pakistan’s economic situation was “worse than anticipated” and the government did not have “fiscal space” to provide subsidies.

Her remarks, made during a meeting of the Senate’s Standing Committee on Finance today, asserted that the interim set-up had “inherited” the International Monetary Fund (IMF) programme, hence, it was “non-negotiable”.

The finance minister’s statement comes as Pakistan remains plagued by the inflated cost of living, particularly exorbitant electricity prices that have forced residents to take to the streets across the country.

So far, the caretaker government has failed to come up with any relief measures as it tries to strike a balance between avoiding drawing the IMF’s ire and causing more citizens to blow a fuse.

In the cabinet meeting presided over by Caretaker Prime Minister Anwaarul Haq Kakar a day earlier, the interim set-up expressed helplessness on how to address the issue, even on spreading electricity bills in instalments unless the IMF cleared it.

Later, interim Information Minister Murtaza Solangi, who didn’t immediately hold a presser after the cabinet’s meeting, told a private TV channel that the government was engaging with the IMF regarding relief measures for electricity consumers and an announcement was expected soon.

A source privy to the meeting told Dawn that the cabinet noted that the interim set-up could not give any relief to consumers, but it could allow breaking up the bills into four to six instalments. “Even in case of instalments, the government will have to get prior permission from the IMF,” the source said.

Addressing a meeting of the Senate’s Standing Committee on Finance today, Akhtar said government institutions were suffering “unbearable losses” and underscored the need to accelerate privatisation.

According to the finance minister, 70 per cent of Pakistan’s tax revenue was being spent on debt relief. Moreover, she said the rupee was under pressure due to the dollar’s low inflows and high outflows.

“The next elected government would have to re-engage with independent power producers,” Akhtar stated.

She went on to say that if the IMF agreement was not implemented, the dollar inflow would stop and the economic situation would worsen. But at the same time, the minister highlighted that measures other than the IMF programme needed to be taken.

“Unfortunately, we have done everything to weaken the economy,” she lamented, adding that the Federal Board of Revenue’s revenue was low while the expenditure was high.

The finance minister also debunked the perception that the caretaker government had “unlimited powers”. “We have limited options and will work within them,” she said.

She further stated that the previous government had agreed on “adjustments” with the IMF and the incumbent set-up could not do anything in this regard.

Akhtar added that the proposal to withdraw facilities for the privileged class was under consideration and a briefing would be given to the committee on the economy after a week.

Prior to the finance minister’s briefing, a number of committee members raised concerns regarding rising dollar and sky-high electricity bills.

PPP Senator Sherry Rehman highlighted that there was a long list of taxes in power bills. “We have heard more surcharges will be added in the upcoming days… the situation has broken people’s backs and forced them to the streets.”

Meanwhile, Senator Kamil Ali Agha demanded that taxes imposed in the bills should immediately be withdrawn, saying that the entire country was paying the price of some people’s theft.

Power bills situation

The rising electricity costs appeared to have put the power companies in a vicious cycle of declining consumption and shifting resultant additional capacity charges to consumers, compelling the government to seek the staggered imposition of Rs146 billion quarterly charges in six months, instead of three months to minimise the ‘price shock’.

The situation emerged at a public hearing organised by the National Electric Power Regulatory Authority (Nepra) on the government request for Rs5.40 per unit additional quarterly tariff adjustment (QTA) to consumers for April-June 2023 when the Power Division made a departure from its petitions. It requested that consumers be charged at a rate of Rs3.55 per unit for six months, instead of Rs5.40 per unit for three months, to reduce the price shock on consumers still struggling to absorb 26pc increase in base national rates notified last month.

Also, the Power Division proposed that even the Rs3.55 per unit additional charge should be imposed after September when an existing quarterly adjustment of Rs1.24 per unit would lapse, thereby further reducing the cost increase. The net increase in tariff for six months — October 2023 to March 2024 — would thus stand at Rs2.31 per unit, a Power Division official pleaded before the regulator.