Home Latest News Government Hints at Cuts to PSDP to Achieve Primary Surplus

Government Hints at Cuts to PSDP to Achieve Primary Surplus

Interim ministers warn of gas price hike to address ‘unsustainable’ circular debt

by Staff Report

Photo courtesy PID

Caretaker Finance Minister Shamshad Akhtar on Friday claimed there were signs of economic recovery in Pakistan, but warned of a looming “across the board” cut in public sector expenditures to achieve a primary budget surplus committed to the International Monetary Fund (IMF).

Addressing a press conference alongside Information Minister Murtaza Solangi and Power Minister Muhammad Ali in Islamabad, she said the caretakers had inherited several challenges, but stressed they would not shy from addressing them prudently by controlling expenditures and improving revenues. “This is the way forward for gradual improvement,” she maintained. “There are some signs of economic recovery, even if it is just starting,” she said, noting the consumer price index (CPI) had declined from 38 percent in May to 27.3 percent last month. “We have come out of some difficulties and price stability will improve as we go forward,” she claimed.

According to Akhtar, economic recovery was also evident in industry, especially in the agriculture sector, as it was hoped crop yield would improve this year and boost exports. However, while acknowledging criticisms from the industrial sector, she said the available data “showed improvement,” with an increase in sales of cement and other items. “The services sector is very vibrant at this stage,” she said, adding the government was working with the Special Investment Facilitation Council to attract foreign direct investment.

The interim finance minister, however, said a major issue was public sector spending, as federal responsibilities had continued to grow despite the devolution of powers to the provinces. Noting there was no bar on the disbursement of funds to provinces, she said public sector spending required review under the IMF program to achieve a primary surplus. Referring to the federal budget for the ongoing fiscal year, she said it appeared to be based on “weak calculations” as it was difficult to achieve a primary budget surplus of 0.4% of GDP in the prevailing scenario.

She said the finance ministry was reviewing federal and provincial development plans, adding restructuring of the Public Sector Development Program would be undertaken following discussions with provincial finance ministers. She indicated a potential “across the board” cut in provincial PSDPs to meet the conditions set by the IMF.

Gas tariffs

The interim power minister, meanwhile, warned of hike to gas tariffs, stressing that the sector was burdened with an “unsustainable” circular debt. He explained that the power sector’s circular debt had reached Rs. 2.5 trillion, while that of the gas sector was now at Rs. 2.9 trillion. Attributing this to a lack of development in the power sector over the past 10-15 years, he said the government had to address this gap because it was now “too big to be absorbed by the government without impacting people.”

According to Ali, the proposed plan for gas tariff revisions calls for rates to be increased for all consumers, with a majority facing hikes of Rs. 200-400/unit, while rich consumers would pay the maximum price. To a question, Akhtar said the proposed tariff hike was not a result of any condition imposed by the IMF.

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