Galloping circular debt

Debt rears its ugly head once again accumulating to Rs176 billion in just one year — as of June 30, 2014 to be exact

The menace of circular debt continues to grow — standing at a staggering Rs1.72 trillion as of December, 31, 2019. Look at the progression: the tricky debt stood at Rs480 billion as of June 2013 before the PML-N government settled it completely at the public expense.

The debt reared its ugly head once again accumulating to Rs176 billion in just one year — as of June 30, 2014 to be exact.

However, falling oil prices in the global market brought down the cost of power generation and helped the government contain the circular debt over the following two years.

The debt figure, thus, fell down some bit — to Rs148 billion as of June 30, 2015 and Rs159 billion as of June 30, 2016.

But with the windfall of the low oil prices over, the crippling debt got back with full steam — reaching Rs729 billion in June 2017; Rs1.2 trillion in June 2018 and Rs1.6 trillion in June 2019. On assuming power, the PTI government had vowed to plug this third-biggest hole in the economy, after current account and fiscal deficits, through efficiency improvements.

In line with a report prepared by a special committee, the Power Division had decided to come down hard on defaulters and power thieves, besides putting the screws on authorities to curtail line losses.

The Division had set specific targets for power distribution companies to recover arrears from previous bills and ensure 100% recovery of current bills, besides adopting a zero-tolerance policy over power theft and illegal hook connections.

To the contrary, the raise in power tariff turned out to be the only surefire recipe to generate money and fill the monetary gap. The PTI government added Rs565 billion to the circular debt — Rs465 billion in FY19 and Rs100 billion in the last six months. While it gained Rs25 billion by improving recoveries and reducing line losses, it extracted Rs195 billion from the public by increasing quarterly and annual tariffs four times.

An IMF review report shows that even by FY23, the government will only be able to reduce the accumulation of circular debt to Rs50-75 billion a year — and that too if a plan drawn up in consultation with the Fund is implemented successfully.

Published in The Express Tribune, January 19^th, 2020.

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