Without allowing an upward revision in electricity and gas tariffs, the government on Saturday directed the relevant authorities to come up with viable plans to reduce the monster of circular debt that had now peaked at Rs4 trillion.
However, without pricing adjustments, the IMF has rejected the initial plan for slashing the circular debt shared by Pak authorities with them in recent days because the Fund wants cost recovery of electricity and gas generation sectors. Top official sources told The News on Saturday that Minister for Finance Ishaq Dar chaired a high-level meeting to deliberate upon the cash bleeding energy sector to prepare a plan for slashing down the circular debt, which will be presented to Prime Minister Shehbaz Sharif for approval. Afterwards, this revised-updated plan will be shared with the IMF. But the meeting with PM was postponed and now it was expected to be held probably on Sunday (today) or Monday (tomorrow).
The IMF high-ups assured the Pakistani authorities that they would continue holding virtual meetings during Christmas holidays and Pakistani authorities were assigned to come up with a viable plan to erase the circular debt. The IMF had expressed its annoyance that the circular debt of the power sector had not shown improvements sought on the occasion of completion of the 7th and 8th reviews under the Extended Fund Facility (EFF) programme. The IMF’s displeasure further grew when the circular debt of the gas sector jacked up to Rs1,600 billion.
Under the plan, the government was considering coming up with alternate plans such as parking the amount of circular debt into separate Special Purpose Vehicle, directing gas utilities to declare their dividends and utilise them for financing, investing Terms Finance Certificates (TFCs) into PIBs and others. After getting approval from PM Shehbaz Sharif, the government would share the revised plan with the IMF with the hope that the Fund staff would grant its assent to it. But another issue remains outstanding as the government of Pakistan deferred bill payments during the peak summer season and now this deferment amount of around Rs100 billion would be required. The IMF wants the govt to recover the amount instead of declaring it a subsidy.
Pakistan and the IMF would also have to reconcile subsidy amounts for reducing electricity and gas prices for export-oriented sectors. The Kissan package and its financing requirements will also be determined. The IMF asked to justify subsidy amount on tubewells and share a plan how to find fiscal space for that. Now it remains to be seen how the government will convince the IMF of its cost recovery plan without raising the prices in energy sector.
Official sources said the government will have to take a decision on the taxation side as well as two options were under consideration for imposing the Flood Levy. The government has proposed to impose a 1 or 2 per cent levy on non-essential imported items.
According to an official statement issued by the Ministry of Finance, Federal Minister for Finance and Revenue Senator Mohammad Ishaq Dar chaired a meeting on reforms in the energy sector at the Finance Division on Saturday. Minister of State for Finance and Revenue Dr. Ayesha Ghous Pasha, Minister of State for Petroleum Musadik Masood Malik, SAPM on Finance Tariq Bajwa, Secretary Finance, Secretary Power and senior officers attended the meeting. The meeting discussed introducing various reforms in the energy sector and issues of stock and flow of circular debt in the sector.
Highlighting the importance of reforms in the energy sector, Dar said that reforms are crucial in the energy sector for economic growth of the country. He further added that the government puts priority to addressing the issues of energy sector, including circular debt, to bring financial sustainability of the sector and economic growth to the country. He further directed the relevant authorities to make viable solutions for the settlement of all issues in energy sector.