IMF Set to Assess Plan Targeting 91% Reduction in Industrial Subsidies

IMF Set to Assess Plan Targeting 91% Reduction in Industrial Subsidies

/ News / IMF Set to Assess Plan Targeting 91% Reduction in Industrial Subsidies

If sanctioned, the proposed reduction in subsidies is poised to have a favorable impact on an array of industrial entities, spanning from major industry players to small and medium-sized enterprises (SMEs).

The Special Investment Facilitation Council (SIFC) is championing a proposal, set for evaluation by the International Monetary Fund (IMF), aiming to slash the subsidy burden on the industrial sector by a significant 91 percent, according to a report by Express Tribune.

This endeavor is geared towards augmenting the competitive edge of Pakistani exporters in the regional landscape, potentially leading to a substantial decrease of up to 29 percent in their monthly expenditures.

The green light for this proposal, granted during the 9th session of the Special Investment Facilitation Council on February 2nd, is anticipated to instigate transformative shifts in the economic panorama.

The comprehensive plan encompasses various dimensions, including a substantial reduction in the commercial debt of Pakistan International Airlines (PIA) totaling Rs268 billion, and an ambitious strategy to curtail the circular debt in the energy sector amounting to Rs1.28 trillion.

Industry insiders, while cautiously optimistic about the proposed subsidy reduction, foresee potential enhancements in productivity and growth within the industrial sector as a result of the anticipated cost savings.

If given the go-ahead, the subsidy cut is expected to bring about positive repercussions, not only for major industrial players but also for SMEs. However, the proposal is not without its set of challenges.

While the reduction in cross-subsidy burdens for the industrial sector is a pivotal focus, there are apprehensions regarding potential consequences on other consumer segments.

The industrial sector, currently shouldering a substantial share of subsidies, stands to gain from the proposed reductions, resulting in an overall effective industrial tariff ranging from Rs8.5 cents per unit to 11.75 cents per unit, as indicated by the newspaper.

The anticipated decrease in variable charges is poised to lead to a tangible reduction in electricity prices for diverse industrial segments. Cottage industries might witness a substantial 28% reduction, SMEs and power looms could experience a 16% cut, and large-scale industrial operations, such as cement and chemical plants, are projected to benefit from a significant 29% reduction in tariffs.

Despite the potential advantages for the industrial sector, the proposal suggests an elevation in fixed charges for residential consumers, ranging from Rs50 to Rs3,000 per month. This shift aims to counterbalance the reduction in subsidies for industrial consumers, potentially resulting in an upswing in monthly bills for residential users.

As the IMF scrutinizes this ambitious plan, stakeholders are eagerly awaiting the outcome of the virtual deliberations.

The decision, if endorsed, could signify a significant leap forward in reshaping the economic landscape and fostering sustainable growth within Pakistans industrial sector.