The World Bank has reduced Pakistan’s economic growth rate forecast for the current fiscal year by almost one percent, saying that the frantic energy subsidies by the previous government placed an additional burden on the budget, posing a threat to the International Monetary Fund (IMF) program.
“The financing of the price cuts or subsidies can create an additional burden on the fiscal budget, threaten the ongoing program with the IMF, and limit the use of the fiscal budget on other, more productive projects”, said the World Bank.
The bank’s Chief Economist for South Asia Region Hans Timmer termed the subsidies as ‘unsustainable and ineffective’. He said that the consumers should be charged the correct prices and redistributed to poor households.
The global financial body noted that Pakistan had previously followed its agreement with the IMF to lift tax exemptions and hike tax on fuels. However, increasing domestic energy prices and challenges from political opposition compelled the government to offer relief on electricity and fuel prices in February.
Timmer added that while these measures could aid in reducing fluctuations in domestic prices, they could also constitute a direct burden or hidden liability on the government’s budget, that could result in an increase in fiscal vulnerabilities going forward.