Galloping circular debt

Circular debt likely to rise over Rs500 billion by next March despite back-breaking hikes in tariffs

Despite massive electricity tariff hikes during the final days of the PDM government, circular debt is still expected to climb by over Rs500 billion by next March. At best, the whopping increase illustrates policymakers’ failure to resolve chronic problems, and at worst, indicates that they were taking us for a ride the entire time. After all, every price hike in recent memory has been accompanied by a promise to control, if not reduce, circular debt.

Meanwhile, the caretaker regime — which ostensibly is not concerned with getting elected and should thus be more inclined to take necessary but unpopular decisions — seems least interested in the issue. A report suggests that the ministries of finance and energy have barely even discussed power sector reforms beyond some nominal comments from caretaker Finance Minister Shamshad Akhtar at a recent meeting. Instead, discussions have focused on getting through targeted subsidies and price hikes without violating IMF and World Bank conditions — the government is seeking some $600 million from the World Bank to pay for power sector reforms.

Instead of fixing problems in the sector, the government has taken the IMF’s demand for “fiscalisation” of power sector inefficiencies to be a free hand to make honest consumers pay for power theft and other line losses, rather than focusing on prosecution and upgradation. This is why the outgoing government’s projection of a Rs386 billion increase in circular debt by March 2024, which was already well off the IMF target, has risen 41% to Rs545 billion. Earlier, the government was supposed to cut the circular debt by Rs155 billion in the first quarter of the current fiscal year. Instead, it will increase by Rs292 billion. Meeting the full-year target of Rs2.3 trillion will require a significant late surge to reduce the shortfall. At the same time, the relaxed IMF target for loss reduction —16.5% — shows that even the lender is more concerned with revenue, and not who is bled dry for that money.