Islamabad, June 18, 2023: Pakistan has taken significant measures to reduce its petroleum subsidy by 47 percent for the upcoming fiscal year 2023-24, according to official budget documents released recently.
The country has allocated Rs53.6 billion towards petroleum subsidies, a notable decrease from the estimated Rs102 billion in the previous fiscal year.
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This decision to curtail petroleum subsidies is expected to have adverse effects on the business and industrial sectors, as the government has withdrawn the provision of lower-rate Liquefied Natural Gas (LNG) for industries. In the outgoing fiscal year of 2022-23, an estimated Rs40 billion was disbursed to the LNG sector to offer affordable gas rates to the industry.
However, the budget for the next fiscal year includes an allocation of Rs12.6 billion as subsidies for Pakistan State Oil (PSO), APL Liabilities, and Others (Shortfall in Guaranteed throughput to APL, PEPCO). This amount surpasses the estimated subsidy of Rs6 billion allocated for the outgoing fiscal year.
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While the reduction in petroleum subsidies poses challenges for businesses, domestic consumers can expect to benefit from a subsidy of Rs30 billion through Sui Northern Gas Pipelines Limited (SNGPL) for Re-gasified LNG (RLNG). This marks an increase from the subsidy amount of Rs25 billion provided in the previous fiscal year.
On the other hand, the government has not set aside any subsidy for exchange losses incurred by PSO on FE-25 Loans. In contrast, an amount of Rs30 billion was disbursed during the outgoing fiscal year to cover such losses.
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Another significant allocation in the next fiscal year’s budget is Rs11 billion as a subsidy for price differential claims on petrol payable to Oil Marketing Companies (OMC).
Pakistan’s decision to slash petroleum subsidies demonstrates a shift in its approach towards cost management and fiscal consolidation. While the reduction may impact the business and industrial sectors, the government aims to strike a balance between economic growth and fiscal stability.
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By implementing these measures, Pakistan aims to address its fiscal challenges and create a sustainable economic environment for the future.
