Budget 2024-25: Govt Allocates Rs 1.36 Trillion for Subsidies

Staff Report
The government has increased the allocation for subsidies to Rs 1.36 trillion for the upcoming financial year 2024-25, with a major portion going to the power sector.

In the federal budget for the fiscal year 2023-24, the government had allocated Rs 1.07 trillion for subsidies, with Rs 584 billion designated for the power sector. Initially, Rs 894 billion was allocated for power sector subsidies, but this was later revised downward to Rs 584 billion. For the outgoing fiscal year 2023-24, the government initially earmarked Rs 1.064 trillion for subsidies, but actual subsidies swelled to Rs 1.07 trillion according to revised estimates.Budget 2024-25: Strict Measures Needed for IMF Loan’s Approval

With the subsidy allocation for FY25, the government aims to provide some relief to consumers of electricity and petroleum, wheat operations, urea, the Ramzan package, the Mera Pakistan Mera Ghar scheme, and interest-free loans to landless farmers. However, it remains uncertain whether the government will stay within the subsidy ceiling or overshoot the target, as happened in the outgoing year.

According to the Budget Book released on Wednesday, the subsidy bill has been estimated at Rs 1.36 trillion for the next fiscal year, which is an increase compared to the allocation for the current financial year. For the next fiscal year, the government has earmarked Rs 276 billion for payments for the Inter-Disco tariff differential, up from Rs 150 billion for the ongoing financial year out of the total subsidy for the power sector.

Additionally, the government has allocated Rs 65 billion for the merged districts of Khyber-Pakhtunkhwa (FATA subsidy) and Rs 86 billion for FATA subsidy arrears. An amount of Rs 108 billion has been set aside for tariff differentials for Azad Jammu and Kashmir (AJK) in FY25, up from Rs 25 billion in the current year. The government had also earmarked Rs 48 billion for the Pakistan Energy Revolving Fund (PERA).

The government had allocated Rs 7 billion for the KESC subsidy industrial support package for the ongoing financial year, but this package has been shelved for the upcoming financial year. Furthermore, Rs 500 million has been allocated for agricultural tubewells in Balochistan for KE consumers.

Out of the total, Rs 174 billion has been set aside to cover K-E’s tariff differential against the original allocation of Rs 171 billion in the outgoing year, with the actual subsidy coming in at Rs 228 billion. The government had allocated Rs 215 billion against Rs 262 billion for GPPS-Equity for the ongoing fiscal year. Additionally, an extra subsidy of Rs 120 billion has been allocated, although the specific allocation was not mentioned.

Apart from the power sector, the government has allocated a subsidy of Rs 18.4 billion for the next financial year against an allocation of Rs 50 billion for petroleum consumers. An amount of Rs 2.4 billion has been allocated to meet the shortfall in guaranteed throughput of PEPCO, down from Rs 5 billion during the ongoing financial year. An amount of Rs 6 billion has also been allocated to cover the shortfall to Asia Petroleum, down from Rs 7.6 billion during the ongoing financial year.

The government has allocated Rs 10 billion for domestic consumers through SNGPL (RLNG), down from an allocation of Rs 29 billion for the ongoing financial year. The subsidy cushion for the Pakistan Agricultural Storage and Services Corporation (PASSCO) has been increased to Rs 12 billion, up from Rs 10 billion for the ongoing financial year. Of this, Rs 8 billion will go to PASSCO for wheat reserve stock and Rs 4 billion for the cost differential for the sale of wheat.

The government has allocated a Rs 68 billion subsidy to Industries and Production. Of this, the Utility Stores Corporation will receive a subsidy of Rs 65 billion, up from an allocation of Rs 35 billion for the ongoing financial year. Out of this, Rs 10 billion will go to the Ramzan package, Rs 50 billion to the USC PM Package and arrears, and Rs 5 billion for sugar subsidy arrears. An amount of Rs 3 billion will be allocated for urea fertilizer.

An amount of Rs 15.8 billion will be allocated for the wheat subsidy to Gilgit-Baltistan, while Rs 10 billion will be allocated for importing urea fertilizer. An amount of Rs 3 billion will be released as a Metro Bus subsidy. An amount of Rs 21 billion has been allocated for the Mera Pakistan Mera Ghar Scheme, which will serve as a markup subsidy on the housing finance scheme. The Naya Pakistan Housing Authority will get Rs 1 billion.

The government has allocated Rs 5 billion for the markup subsidy and risk-sharing scheme for farm mechanization/Kisan package. An amount of Rs 3.2 billion has been allocated for the refinance and credit guarantee scheme (SME Assan Finance), Rs 2 billion for enhancing financing to the SME sector, and Rs 13.8 billion for the markup subsidy to support the phasing out of the SBP’s refinancing facilities.