Pakistan is facing twin challenges of retiring Rs156 billion of central bank loans and restructuring the bleeding power sector before the start of crucial negotiations with the International Monetary Fund (IMF) in an effort to normalise the uncertain relationship.
An official of the finance ministry said the government has made “progress” but it has yet to return Rs156 billion borrowed from the State Bank of Pakistan (SBP) for budget financing and take a step forward in power sector reforms by abolishing Pakistan Electric Power Company (Pepco). All this must be done before meeting the IMF in July. Date and venue of talks will be decided after compilation of data of the outgoing fiscal year, ending June 30.
“The government is in a comfortable position and it will retire the central bank loan through issuance of treasury bills, profit from the State Bank and tax revenues,” said Rana Assad Ameen, official spokesman for the finance ministry.
Ameen said the government expects the IMF to give, in return, a letter of comfort and recommend to its Executive Board to release the withheld loan tranche of $1.7 billion.
The letter of comfort is required for obtaining loans for budget financing from the World Bank (WB), the Asian Development Bank (ADB) and other lenders.
Since June last year, relations between Pakistan and IMF have been rocky due to the government’s inability to overhaul the General Sales Tax system and restructure the power sector, leading to the suspension of $11.3 billion bailout programme and release of only negligible external budgetary assistance. This has led to massive domestic borrowings, leaving less for the private sector.
The government’s claim of restricting budget deficit to 5.9 per cent of gross domestic product (GDP) or Rs1,067 billion means it has borrowed Rs874 billion from the market.
The finance ministry’s spokesman said Pakistan made “partial progress” in Reformed General Sales Tax implementation by withdrawing certain exemptions through Finance Bill 2011.
Power sector reforms
The other contentious issue is power sector reforms with major focus on dissolution of Pepco, increase in power tariffs and enhancement in the sector’s efficiency. The deadline for Pepco’s dissolution is June 30, which may not be met.
An official involved in power sector reforms said the company would be dissolved before July 15, making power distribution companies independent in decision-making.
The finance ministry’s spokesman said during May parleys with IMF in Dubai, WB and ADB endorsed the power sector reforms and in the upcoming talks Islamabad would give a progress report. The power sector business plan has two components, one for the outgoing fiscal year and the other for the upcoming year.
An official of the Economic Reforms Unit of the finance ministry said the government had told IMF that it would restrict subsidies in the band of Rs135 to Rs153 billion and the final figure by June 30 would be near Rs140 billion. This was possible after shutting down inefficient power plants.
Total power subsidies remained at Rs285 billion including arrears of previous years.
Published in The Express Tribune, June 29th, 2011.
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