Focus on maintaining growth momentum

The Economic Advisory Council (EAC) on Monday agreed to keep the focus of coming budget on agriculture, export diversification, higher subsidy allocations and to extend construction sector tax amnesty until December 31 to maintain the growth momentum.

The second meeting of the EAC presided over by Finance Minister Shaukat Tarin deliberated upon six out of 12 expert groups. The minister told the EAC that ultimate goal of these consultations was to spur growth and take it to around 6-7pc in a couple of years to make Pakistan a regionally competitive economy.

The Ease of Doing Business would also remain a key priority in the next year budget while further discussions would take place on debt re-profiling and management. It was also agreed to extend the fixed cheaper power rates to the industry until October 2023 as part of a major initiative in the power sector.

It was agreed that coming budget would not envisage regressive taxation and instead ensure complete facilitation to the private sector to complete their own projects as well as be part of the public private partnership.

Informed sources said the expert group of energy advised expedited efforts on power sector circular debt and suggested that 40pc of the outstanding capacity payments pertain to the public sector power plants which should be addressed on priority. The meeting reviewed the ongoing discussions with sponsors of remaining independent power producers including those under CPEC, primarily on debt rescheduling to reduce circular debt build up.

The EAC was categorically told that the prime minister had strictly forbidden power tariff increase during the current fiscal year and efforts would be made to keep tariff at the bare minimum in the next fiscal year would depend on some relief in circular debt payments.

In this direction, the additional Rs200bn worth of annual circular debt burden of two 2,200MW nuclear power plants (K-2 & K-3) was discussed. The sources said SAPM on Power and Petroleum Tabish Gauhar told the meeting that various options were being discussed with their financiers to find ways to basically defer the Rs200bn financing.

While the Ministry of Finance has so far committed Rs330bn subsidy for the power sector next year, the Ministry of Energy is still insisting on allocation of about Rs500bn subsidy to ensure better targeting of circular debt reduction.

The meeting was informed that first instalment (40pc) of about Rs90bn payments to 35 IPPs would be cleared this week, the remaining 60pc payments would follow suit in a few weeks and fall in the next fiscal year, which would together reduce circular debt by over Rs400bn. Another Rs100bn worth of circular debt would come down before Dece 31 with non-cash adjustments of receivables and payables between various government entities.

The sources said Mr Gauhar told the EAC that major focus of circular debt management plan and absorption of surplus capacity would continue on demand growth. The industrial support package offered to the industry on incremental consumption last year had shown 15pc month-on-month increase in electricity consumption but the package would expire on June 30, 2021. This fixed rate on incremental consumption would be extended till October 2023 to support manufacturing and energy consumption.

Secondly, the peak and off-peak rates for domestic electricity consumers would also be abolished on the pattern of industry coupled with some reductions in electricity rates for additional consumption to incentivise shifting space and water heating from expensive natural gas to cheaper power rates.

At the same time, it was warned that another initiative already in motion for demand growth entailed incentivising wheeling of electricity by the private sector under the Competitive Trading Bilateral Trading Market currently in the implementation phase would result in exit of good paying and bulk consumers out of the public sector. This would be a great support to overall economy as quality consumers considered cream of the sector would shift to the private power supplier through the wheeling mechanism but the power sector would suffer as small and partially subsidised consumers would remain with the public sector.

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