The government has decided to drastically reduce subsidies in the new budget and squeeze out higher amounts of surplus from the provinces to meet fiscal deficit limits set under international commitments.
Pakistan and the International Monetary Fund (IMF) agreed this month on a fiscal deficit target of 4.8 per cent of the GDP (Rs1.63 trillion) for next year against 5.7pc estimated for the current year.
The government has decided to reduce overall subsidies to Rs229 billion from Rs338bn this year — a reduction of over 32pc.
The government has given an undertaking to the IMF to introduce a second round of reforms in the power sector during the next fiscal year to cut subsidies by about 0.4pc of the GDP — about Rs120bn.
The reduction may increase monthly expenditures as the rate of inflation rises, but may help revive investment if diverted to the development programme.
The government had set a target of providing Rs220bn power sector subsidies during the current year but ended up paying more than Rs280bn to the sector to keep loadshedding within a manageable level.
