Pakistan’s federal budget for fiscal year 2025-26 is expected to propose a significant allocation of Rs1.079 trillion for power sector subsidies. This figure, finalized in recent meetings between the government’s economic team and the International Monetary Fund (IMF) Mission, represents a slight decrease from the Rs1.190 trillion earmarked for the current fiscal year 2024-25. Well-informed sources within the Finance Division revealed these details to Business Recorder.
The Finance Division has also conveyed revised provisional Indicative Budget Ceilings (IDCs) of Rs636.136 billion for sector subsidy on account of the recurrent budget for 2025-26. This is a substantial increase from the earlier indicative amount of Rs400 billion, signaling the continued strain of subsidies on the national exchequer. While the precise details of how the FY 2024-25 allocation for the power sector subsidy has been consumed are not yet available, the new figures underscore ongoing efforts to manage the sector’s financial viability.
Strict Compliance and Austerity Measures
The Finance Division has issued stringent directives to the Power Division, emphasizing strict and full compliance with mandatory instructions by all Principal Accounting Officers (PAOs), heads of departments, and entities when preparing budget estimates. These instructions are aimed at fostering greater fiscal discipline and efficiency:
- Performance-Based Budgeting: PAOs are required to formulate well-defined plans to ensure compliance with the Public Financial Management (PFM) Act, 2019, regarding performance-based budgeting and expenditures.
- Adherence to Guidelines: Guidelines and procedures outlined in the Financial Management and Powers of PAOs Regulations, 2021, and the Budget Call Circular (BCC) for FY 2025-26 must be strictly followed.
- Single Treasury Account (TSA): Entities must ensure the adoption of a Single Treasury Account (TSA) as per Section 30 of the PFM Act, 2019, read with Cash Management & TSA Rules, 2024.
- Climate-Sensitive Budgeting: Information for both current and development budgets must be filled according to the typology defined in Form-IV for Climate Sensitive Budgeting/Green Budgeting. Cost centers related to green components are also to be identified.
- KPIs for Gender and Climate: Key Performance Indicators (KPIs) related to gender and climate are to be identified separately in Performance-Based Budgeting (Form-1).
- Quarter-wise Estimates: PAOs, Heads of Departments, and Bodies/Entities are required to submit quarter-wise budget estimates for FY 2025-26.
- No Assumption of Additional Allocation: PAOs must make expenditures strictly within budgetary allocations, without assuming any additional allocations during the financial year. Supplementary budgets, both regular and technical, will not be provided.
- Austerity Measures: Austerity measures issued by the Finance Division periodically must be fully adhered to. No allocations are to be made for banned heads of expenditures, and any such allocations will require approval from the austerity committee.
- Rupee Cover: Full allocation of rupee cover against leased funds will be adjusted from within the funds provided, with anticipated foreign grants being subsequently requested.
Fiscal Constraints and Circular Debt Management
Recently, the Finance Division had communicated to the Power Division that the allocation of power sector subsidies for the fiscal year 2025-26 would ultimately depend on the availability of fiscal space. This was in response to a letter from the Power Division, titled “MEFP for EFF 2024-27 – Circular Debt (CD) Target for FY 2025-26,” which sought indicative allocations for the upcoming fiscal year to help bridge the circular debt gap.
The Corporate Finance (CF) Wing of the Finance Division reiterated that budgetary allocations for the power sector in FY 2025-26 would be finalized through the standard budgetary process, in consultation with the Budget and CF Wings, while strictly considering prevailing fiscal constraints.
It was also noted that the Finance Ministry did not endorse the Power Division’s proposal to release an advance subsidy of Rs224 billion to address power sector cash flow and liquidity concerns. The Finance Division argued that sufficient funds—amounting to Rs633 billion—had already been allocated under various budgetary heads in line with the Power Division’s requirements, effectively denying the request for an additional advance.
