Circular debt conundrum

Circular debt issue took another ugly turn as a central bank official confirmed SBP cleared Rs342bn worth of debt

The circular debt issue took another ugly turn recently as a central bank official confirmed that the State Bank of Pakistan (SBP) cleared Rs342 billion worth of debt “as a special case on the advice of the Ministry of Finance” in 2013, a month after the PML-N came to power. His statement came during a meeting of the Senate Standing Committee on Finance, deepening doubts over the authenticity of the payment made to Pepco for onward distribution among electricity distribution companies (DISCOs). The Auditor General of Pakistan had already cast suspicions over the Rs480-billion payment made to clear circular debt, saying that Rs165 billion of the total was avoidable. The statement by the SBP official further lends credence to the suspicion that something was deeply amiss in the entire fiasco. Governments in Pakistan are not exactly known for making prompt payments of any kind. Here, however, a payment was made in a day, admitted the SBP official.

The government has subsequently shown its tight fist when it comes to spending money, especially where the much-trumpeted Kisan package is concerned, as well as on development spending. So how come, in its first few hours in power, did it so readily make the Rs480 billion payment without even taking into account whether the dues were genuine or not? How come there was no stalling as has been the case with every other payment? The answer lies in the reasons the payment served for the PML-N. Not only did it clear circular debt through a budget book that had 11 months of PPP rule written on it, it increased the expenditure for the fiscal year 2013, meaning that the PML-N could claim to have reduced the deficit given the higher benchmark. It also meant that IPPs and DISCOs could provide some sort of uninterrupted power supply before the circular debt piled up again — especially since reforms in the sector were never going to happen. Efforts to privatise state-owned power companies have been made only on paper. The circular debt has piled up again. This time the PML-N should own up to its failure.

Published in The Express Tribune, March 1^st, 2016.

Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.