Under a debt-consolidation plan, economic managers have agreed to include power sector and commodity financing loans in the budget that have so far been parked outside to keep the deficit on the lower side, sources in the finance ministry said.
It is seen as a prudent decision that though will affect budget projections in the short term but will contribute to breaking the vicious circle of debt and partly address liquidity problems of power companies in the long run.
Experts have urged the government to implement energy sector reforms for a permanent solution to the shortages. The government ought to bridge the difference between cost of power generation and price charged from consumers, improve bill collection and control theft, they added.
The central government has estimated budget deficit at Rs850 billion or four per cent of national economy by the end of fiscal year in June 2012. If the government absorbs outstanding liabilities of Rs380 billion, it will push the deficit to 5.8 per cent of gross domestic product (GDP) or Rs1,230 billion.
However, the move will clear balance sheets of banks and address their major complaint as they were reluctant to lend more money to power companies on the plea that they have already consumed the allocated amount
In the previous fiscal year, the government had also absorbed Rs120 billion in power sector debt that took the budget deficit to 6.5 per cent of GDP.
Sources said the government would disband Pakistan Power Holding Company, established in 2009 to park over Rs301 billion of power sector liabilities. Though the government has already picked this amount by issuing term finance certificates (TFCs), it was unwilling to show it as sovereign debt.
According to budget documents, last year the government paid Rs40 billion in mark-up on the amount it parked in the holding company. To make interest payments on TFCs this fiscal year, it has earmarked Rs55 billion that is even more than the amount allocated for subsidies to provide relief to the lowest strata of society.
“If the government decides to take power sector loans on its budget, it will create some space for banks to spare money for the power companies,” said Abdullah Yousuf, the Chairman of the Independent Power Producers’ Advisory Council.
Perturbed by non-payment by the state-run power company, the independent power producers (IPPs) had recently served the government with show cause notices to invoke sovereign guarantees. However, on assurance of providing Rs8.5 billion by September 29 and remaining Rs36.5 billion by October 15, the IPPs withdrew the notices.
In addition to power sector dues, the government has decided to pick up the portion of commodity financing that is not backed by any commodity stock, sources added. Up to June 30, the outstanding debt for commodity financing stood at Rs399.5 billion, mostly borrowed by provincial governments.
However, sources said the finance ministry would only include liabilities of the federal government in the budget.
Published in The Express Tribune, September 28th, 2011.
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At least this gives a better and more accurate picture of the deficit. However, even 5.8% for end-2011-12 is a dream and there is nothing to suggest that the same problem will not come back to haunt us again.
We need REFORMS not band-aid, piecemeal solutions.
more debt... i think ten generations in future will be nose deep in our debt... very shameful financial management, and then go and beg like a eternal beggar in international market. Why dont we fix the financial basics first?