Govt working On Viable Plans To Reduce Circular Debt Of Pakistan

Without allowing any increases in electricity or gas tariffs, the govt directed the relevant authorities to devise viable plans to reduce circular debt of Pakistan.

Govt working On Viable Plans To Reduce Circular Debt Of Pakistan

Without allowing any increases in electricity or gas tariffs, the government directed the relevant authorities on Saturday to devise viable plans to reduce the monster of circular debt of Pakistan, which had now reached Rs 4 trillion.

However, the International Monetary Fund (IMF) has rejected the initial plan for reducing the circular debt shared by Pakistani authorities in recent days because the Fund wants cost recovery in the electricity and gas generation sectors.

According to sources, the Finance Minister chaired a high-level meeting on Saturday to discuss the cash-strapped energy sector and prepare a plan for reducing the circular debt, which will be presented to the Prime Minister for approval.

Following that, the revised-updated plan will be shared with the IMF. However, the meeting with the Prime Minister was postponed, and it is now expected to take place on Sunday (today) or Monday (tomorrow).

The IMF assured Pakistani authorities that virtual meetings would continue during the Christmas holidays, and authorities of Pakistan were tasked with devising a viable plan to eliminate the circular debt.

The IMF was dissatisfied that the circular debt of the power sector had not shown the desired improvements following the completion of the 7th and 8th reviews under the Extended Fund Facility (EFF) program. The IMF’s displeasure grew when the gas sector’s circular debt reached Rs 1,600 billion.

The government was considering alternative plans such as parking the amount of circular debt in a separate Special Purpose Vehicle, directing gas utilities to declare dividends and use them for financing, investing term finance certificates (TFCs) in PIBs, and others.

Following approval from the Prime Minister, the government would share the revised plan with the IMF in the hope that the Fund’s staff would approve it. However, another issue remains unresolved: the Government of Pakistan deferred bill payments during the peak summer season, and this deferment amount of approximately Rs100 billion is now required. The IMF prefers that the government recover the money rather than declare it a subsidy.

Pakistan and the IMF would also have to reconcile the amounts of subsidies for lowering electricity and gas prices for export-oriented sectors. The Kissan package, as well as its financing requirements, will be determined.

The IMF requested that you justify the amount of the tubewell subsidy and share a plan for finding fiscal space for it. It remains to be seen how the government will persuade the IMF of its cost-cutting plan without raising energy prices.

According to official sources, the government will have to make a decision on taxation, and two options for imposing the flood levy are being considered. The government has proposed a 1% or 2% tax on non-essential imported goods.

Originally published at The News