Re: Power tariff hike: Govt imposes 30 paisa per unit EQ surcharge
From what I know … during Musharraf time, government made a commitment that government would keep budget deficit below 5 percent of GDP. But once Musharraf government ended (2008), thugs into power increased budget deficit above 5 percent (mostly due to their mismanagement, incompetency, and corruption), causing lot of problems. In 2004, Pakistan came out of all IMF programs, but in 2009, Zardari took Pakistan back to IMF.
When lending, IMF tells government to reduce budget deficit, as low budget deficit means healthy economy, low inflation, low interest rate in country (means low borrowing cost to government) and also low borrowing requirement (as low budget deficit means less need to borrow).
Now it is up to government how to reduce budget deficit and from where. IMF only recommends ways and areas budget deceit can be reduced.
For instance: Showing expenditure, Pakistan government may say that they are subsidising electricity by ‘X’ amount. IMF might say that they should reduce electricity subsidy (along with other subsidies) so that deficit reduces. Reduction in subsidy means increasing electricity tariff cost.
Well, government can reduce cost on electricity to consumers by reducing corruption, line losses, stealing of electricity, non-payment of bills, etc … and then to keep tariff at particular price. This way, government may need to give no subsidy, rather could even start making profit (reducing budget deficit).
But corrupt and incompetent governments (Zardari/Nawaz) do not like to reduce corruption, line losses, stealing of electricity, non-payment of bills, etc … and that means high cost of paid electricity (electricity to consumers who pay). As cost of paid electricity could go too high, government allocate money to cover some cost in budget as subsidy on electricity. This allocation increases budget deficit.
Here is Pakistan budget deficit data over years since ‘1950 to 2012’:
Source … Pakistan ministry of finance (and State bank of Pakistan).
[TABLE]
Decade
Average Budget deficit
Period
(as percentage of GDP)
1950-59
7.7
Pre-Ayub
1960-69
8.6
Ayub
1970-79
7.1
Bhutto
1980-89
7.0
Zia
1990-99
6.8
Thugs (BB and NS)
2000-09
4.7
Musharraf
2009-10
6.3
Zardari
2010-11
6.6
Zardari
2011-12
8.5
Zardari
