Staring into the abyss
PTI government inherited an economic crisis with a ballooning circular debt along with a weakening economy
The government’s management of the burgeoning circular debt has landed another state-run entity — the Pakistan State Oil (PSO) — in hot water, with its receivables crossing a record Rs364 billion. At the heart of the matter are the unpaid receivables from the power sector which amount to Rs265 billion as part of the circular debt. There are a further Rs51 billion in receivables against the Sui Northern Gas Pipelines Limited (SNGPL) due to non-payment for Liquefied Natural Gas (LNG) supplies. Moreover, the PSO is also expecting Rs48 billion from the Pakistan International Airlines (PIA) and the federal government on account of price differential claims and exchange rate loss.
The fuel supplier has been pressing the petroleum and finance division for the release of at least Rs100 billion to ensure the smooth supplies of LNG and other petroleum products, particularly since Rs43 billion worth of letters of credit to foreign suppliers have become due, in addition to Rs15 billion to local refineries. To retire some of this debt, the government had hoped to launch Rs200 billion Sukuk, or Islamic bond, earlier this month. But the bond was delayed due to last-minute differences over the return on profit following recent policy rate hikes by the State Bank of Pakistan. The SNGPL’s bid to raise some Rs25 billion on its own through borrowings to lower the payables to PSO also ran aground after Prime Minister Imran Khan fired the company’s head over gas shortages.
The Pakistan Tehreek-e-Insaf (PTI) government inherited an economic crisis with a ballooning circular debt along with a weakening economy. And while the government sought to ease apprehensions of lenders by setting up a repayment system for these loans directly by the central bank on the basis of a budgetary allocation by the finance ministry, the government has been unable to convince commercial banks to back it any further. The government will have to take some tough decisions on where it allocates its meagre resources, fighting the most critical fires first.
Published in The Express Tribune, January 22nd, 2019.
The fuel supplier has been pressing the petroleum and finance division for the release of at least Rs100 billion to ensure the smooth supplies of LNG and other petroleum products, particularly since Rs43 billion worth of letters of credit to foreign suppliers have become due, in addition to Rs15 billion to local refineries. To retire some of this debt, the government had hoped to launch Rs200 billion Sukuk, or Islamic bond, earlier this month. But the bond was delayed due to last-minute differences over the return on profit following recent policy rate hikes by the State Bank of Pakistan. The SNGPL’s bid to raise some Rs25 billion on its own through borrowings to lower the payables to PSO also ran aground after Prime Minister Imran Khan fired the company’s head over gas shortages.
The Pakistan Tehreek-e-Insaf (PTI) government inherited an economic crisis with a ballooning circular debt along with a weakening economy. And while the government sought to ease apprehensions of lenders by setting up a repayment system for these loans directly by the central bank on the basis of a budgetary allocation by the finance ministry, the government has been unable to convince commercial banks to back it any further. The government will have to take some tough decisions on where it allocates its meagre resources, fighting the most critical fires first.
Published in The Express Tribune, January 22nd, 2019.