Imdad 
Mismanagement Of Contracts
Conceding the mismanagement of contracts in its previous tenure was a major source of energy sector challenges, the PML-N-led government identified Sunday domestic political uncertainty, the Russia-Ukraine war, significant losses and debts of state-owned enterprises (SOEs), and higher provincial deficits as key risks to next year’s budget and Pakistan’s medium-term macroeconomic outlook.
Increase in Expenditures Due to Higher subsidies & Interest Payments
In a statement to parliament under the Public Finance Act as part of the fiscal budget, Finance Minister Miftah Ismail highlighted a possible increase in expenditures due to higher subsidies and interest payments. He anticipated a setback to revenue collection owing to demand contraction, posing substantial risks to the sustainability of fiscal and monetary projections and economic growth.
“Volatility in prices of these fuels is a major reason behind the volatility in inflation rates which, in turn, contribute to volatility in interest rates and exchange rates.”
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Reasons Behind the Power Sector Losses
“The main reasons behind the power sector losses include high cost of generation, attributable to costlier technologies and poorly designed contracts, resulting in exorbitant profits for private investors and front-loading of debt repayments during the first ten years of plant operations, above-average transmission and distribution losses and below-average recoveries of electricity bills,” the statement issued by the finance ministry said. As a result, the power sector was the largest recipient of government subsidies, it added.
The statement said various fiscal risks confronted Pakistan and a lot of effort was required to overcome or mitigate the potential adverse effects of such risks.
“The silver lining is that the country has already made considerable progress in certain areas and a number of strategies are available to address the risks that remain,” the statement added. It promised a cohesive risk management strategy under the Public Financial Management reforms to bring transparency, discipline, and credibility at all stages of the budget cycle to lower exposure to such risks and create buffers to counter.
