The legacy curse
ECC failed to devise a mechanism to curb circular debt, which now stands at almost Rs600 billion
The new government of the Pakistan Tehreek-e-Insaf (PTI) is far too young to be held accountable for anything as yet, but not so its predecessor that had the best part of five years to make a mess of things. And make a mess it did with one of the largest messes being circular debt, currently under the nose of the PTI fixers and pain for all and sundry, political and in the pocket, is on the horizon.
The Economic Coordination Committee (ECC) on Monday September 4 failed to devise a mechanism to tame the circular beast, which now stands at almost Rs600 billion. Consumers both domestic and industrial are likely to see a price rise of a stinging 33 per cent or Rs15 per unit. This is likely to force the government to review previous policies, which heavily subsidised the cost of electricity provided to industrial units.
Circular debt is not a ‘single item’ it is made up of a set of complex elements, many of them overlapping and some of them years or even decades old. Simply throwing money at it is going to solve little or nothing as the PML-N discovered in 2013 when it settled debts of Rs480 billion three weeks after taking office. The beast quickly absorbed the cash and was soon back for more as the culture that allows circular debt to grow and thrive was unaddressed. It remained unaddressed to date and the ECC is stalled in the search for a solution.
From the macro to the — relatively — micro it has been decided to disconnect the meters of all individuals, departments or ministries that have failed to pay their dues for three consecutive months or more. If followed through without the usual suspects being passed over this is going to quickly produce howls of pain. Settlement of bills will see power restored but only available via a prepaid meter. Circular debt in the power sector will be around for a while yet. Meanwhile, enjoy the sound of some big pips getting squeezed.
Published in The Express Tribune, September 5th, 2018.
The Economic Coordination Committee (ECC) on Monday September 4 failed to devise a mechanism to tame the circular beast, which now stands at almost Rs600 billion. Consumers both domestic and industrial are likely to see a price rise of a stinging 33 per cent or Rs15 per unit. This is likely to force the government to review previous policies, which heavily subsidised the cost of electricity provided to industrial units.
Circular debt is not a ‘single item’ it is made up of a set of complex elements, many of them overlapping and some of them years or even decades old. Simply throwing money at it is going to solve little or nothing as the PML-N discovered in 2013 when it settled debts of Rs480 billion three weeks after taking office. The beast quickly absorbed the cash and was soon back for more as the culture that allows circular debt to grow and thrive was unaddressed. It remained unaddressed to date and the ECC is stalled in the search for a solution.
From the macro to the — relatively — micro it has been decided to disconnect the meters of all individuals, departments or ministries that have failed to pay their dues for three consecutive months or more. If followed through without the usual suspects being passed over this is going to quickly produce howls of pain. Settlement of bills will see power restored but only available via a prepaid meter. Circular debt in the power sector will be around for a while yet. Meanwhile, enjoy the sound of some big pips getting squeezed.
Published in The Express Tribune, September 5th, 2018.