Circular debt spike

Circular debt in the petroleum sector continues to rise, going up by Rs500 billion, or about 42%, in less than a year, despite pressure from the IMF to address the issue through revocation of subsidies and introduction of new taxes. A recent Public Accounts Committee meeting was informed that the government is looking into asset swaps to help clear dues to power plants, and that new gas tariffs had reduced the debt by Rs250 billion —which means that the government has still managed to bleed an even larger sum of money, despite the new taxes. Meanwhile, asset swaps are a temporary solution and only push the debt forward a few months or years while potentially worsening them due to interest and service costs, which is how we got into all of our national debt crises in the first place.

Unfortunately, the government is also disinclined to share its much-touted plan to clear the circular debt in the petroleum sector, even though some clarity on the plan would help. All the dilly-dallying over a solution becomes even more pronounced when we recall that the IMF has been rejecting our circular debt management plans for several years, calling out several weaknesses that our planners insist on including, and also the use of questionable numbers to justify subsidies which are operatively only beneficial for the rich.

Given the fact that increasing government revenues by growing the economy at high rates seems out of the question till other issues are resolved, debt reduction policies need to be strengthened to help make funds available for development spending, especially for longer-term plans. And while work on this front is definitely lacking, even the rare instances where lawmakers have actively tried to address circular debt have been plagued by weak government enforcement — just look at the non-action on billions worth of overdue recoveries against two large oil and gas companies, or for that matter, even the failure to address power and gas theft, which add to the burden on law-abiding consumers while also contributing to debt.

Published in The Express Tribune, May 21^st, 2023.

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