Circular debt payments

A lot has been said on the circular debt issue, the vicious cycle in which all stakeholders play their part in exacerbating the power sector crisis, but overpayments seem to be a newer phenomenon. It has now come to light that in its haste to overcome the circular debt crisis after coming to power, the PML-N government failed to verify all claims of Independent Power Producers before making payments to them, Rs165 billion of which could have been avoided. Pakistan’s power sector is afflicted by corruption at all levels and of all sorts, ranging from non-payment of dues to electricity theft, compelling power utilities to raise tariff for honest consumers, who are forced to compensate for theft taking place elsewhere. Despite this, the circular debt continues to balloon, increasing every year with the government parking the amount in its holding company to take the burden off the budget. Steps to restructure state-owned companies are met with fierce criticism and any attempts to privatise them are received with a backlash by employees who waste no time in taking to the streets.



There is no doubt that the government has reduced the budget deficit, but it partly managed to do so by paying off the circular debt amounting to Rs480 billion right after taking over from the PPP in May 2013, raising the deficit benchmark for subsequent years. Meanwhile, newly-incurred circular debt is parked in the holding company, which is tantamount to nothing but an innovative accounting technique to balance books. Additionally, when the auditor general finds that Rs165 billion of the total payments made in 2013 were irregular and could have been avoided, there will be eyebrows raised. One can understand why there was haste in making the payments. The budget session was approaching and payments had to be made before it took place in order to raise the budget deficit benchmark. What was evidently ignored was that payments made in haste tend to consist of more irregularities than those made after carefully taking all figures into consideration. Since then, the PML-N government has methodically and carefully planned its steps, making payments only when it thought there was a dire need to do so. But this latest controversy refutes its claim about having avoided corruption scandals during its tenure.

Published in The Express Tribune, January 23^rd,  2016.

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