The scourge of concessions

Mansoor Ahmad
Thursday, Aug 18, 2022

LAHORE: Pakistani politicians must realise that the honeymoon period is over, no matter who governs the country the days of public appeasing measures are over.

Our lenders now enjoy the veto to reject non-budgeted expenses.

We do not generate resources to run day-to-day affairs of the state. The revenue we collect is short even to foot the debt servicing and defence bills. All remaining expenses are met through borrowing. Still our rulers try to dole out subsidies and concessions to appease the electorate.

Even the masses do not realise that subsidies provided through borrowing are counterproductive. The cost of living continues to increase.

The state has been providing subsidies on electricity since 1990’s. The cost of electricity continues to increase because of three reasons.

The first is uncontrollable corruption in transmission and distribution, it also includes about 10 percent non-collection of billed amounts. The other reason is that we provided sovereign guarantees to buy power produced by the private sector on a fixed profit of 4 cents per unit.

The profit of 4 cents per unit was equal to Rs3 per unit in 1994 when this system of buying power from the private sector was introduced. Now the 4 cents are equal to Rs10. This is only the guaranteed profit. The cost of fuel is much higher.

On average one unit costs the government Rs26. The subsidised tariff is Rs10 to 13 depending on tariff usage slabs. The government defaults on timely payments and pays interest on the defaulted amount. The circular debt keeps mounting. How can a government mired in debt afford such a subsidy? This high interest adds to the cost of energy.

Another big subsidy item was introduced in 2008 by the then PPP government in the form of Benazir Income Support Programme. The programme started with a budget allocation of Rs100 billion and provided Rs1,000 to the head of the family, which was verified from NADRA data.

The amount has now ballooned to over one trillion rupees.

The monthly stipend has been increased and the number of beneficiaries has also gone up. The recipients are now parasites on national resources.

This subsidy amount is higher than the annual development programme. It kills the urge to look for jobs and is a waste of national resources.

The previous government of the PTI went a step further and opened langar khanas (free meal centers for everyone) across the country. Hundreds of billions of rupees are spent to feed poor people, who spend the whole day in long queues to get free meals and feel no need to look for a job to earn a living.

The subsidies have created a vicious cycle and are the main burden on the economy. It is because of unwarranted subsidies that we are in trouble.

The plight of people continues to worsen despite these subsidies as the economy does not have the capacity to absorb them. Instead of improving the economy the state tries to come up with ways to increase the subsidies further. The loss-making state enterprises are being nurtured to protect a few thousand jobs that cost the government over Rs1,000 billion a year.

The government must close these loss-making entities and just pay the employees their salaries that would not cost more than Rs100 billion. The bailouts that the state provides to loss-making enterprises is also a kind of subsidy. The planners must realise that we cannot afford subsidies.