Power sector debt soars to Rs2.54tr

IMF review signals delays in energy deals, debt reduction measures

ISLAMABAD:

Despite an increase in electricity prices, Pakistan’s power sector circular debt reached Rs2.54 trillion by the end of September. However, this debt remains within the maximum ceiling agreed upon with the International Monetary Fund (IMF).

The Ministry of Finance, on Thursday, conducted a review of the $3 billion Stand-By Arrangement with the IMF, concluding that the country’s performance was largely satisfactory. Nevertheless, there was a delay in reopening and finalising energy deals with Chinese power plants.

Pakistan had also committed to the IMF to consolidate all government funds into a single account maintained with the central bank by the end of October, but there have been some delays in this process.

Sources indicate that an additional Rs227 billion were added to the power sector circular debt over the past three months, bringing the total debt stock to Rs2.537 trillion.

According to a senior official from the Ministry of Energy speaking to The Express Tribune, under the revised circular debt management plan, the ceiling for an increase in circular debt was set at Rs292 billion for the first quarter. The ministry has performed better than expected, and it anticipates that the overall circular debt level will decrease in the coming months.

Read Economic crisis affected performance in FY23: KE

While the Ministry of Finance has released Rs70 billion in subsidies to partially offset the circular debt, this amount was disbursed in the first week of October. This is why the fiscal operations of the Ministry of Finance showed only Rs2.5 billion in spending on subsidies during the first quarter, as the ministry delayed payments by a week to avoid including them in first-quarter expenditure.

Meeting the conditions, the government has also increased power tariffs to Rs8 per unit with effect from July and has already notified the monthly fuel adjustment for July. It is also in the process of increasing prices for August, with these changes set to take effect from this month. Similarly, the quarterly tariff adjustment of Rs3.3 per unit will also be implemented this month for a period of six months, keeping prices high despite lower consumption during winter.

An IMF mission will review Pakistan’s performance for the July-September quarter starting from November 2. The successful completion of this review will pave the way for the approval of a $710 million loan tranche by the IMF executive board in December. The IMF has imposed a set of conditions in nearly every major area of the budget, with some of these conditions being time-bound and others to be implemented throughout the fiscal year.

Additionally, the government is working on withdrawing subsidies for agriculture tube wells used by large agricultural users. However, there have been delays in conducting a field survey in the provinces, and it is expected that the subsidy withdrawal plan will be submitted to the cabinet by the end of this year, to be implemented by June next year.

Regarding the renegotiation of power purchase agreements with Chinese power plants, the Chinese have refused to reopen these deals. The government is working on finalising a new strategy to address this issue, including potentially constituting a new committee to negotiate with the Chinese operators of these plants. Pakistan had assured the IMF that it would link the clearance of outstanding dues to the renegotiation of existing deals.

The Ministry of Finance has also met the condition of restricting sovereign guarantees to Rs4 trillion, with guarantees reduced to Rs3.85 trillion following the retirement of a loan by the Pakistan Atomic Energy Commission.

The Finance Ministry is confident that it is on track to meet the condition of implementing the second phase of the treasury single account by the end of this month, although some entities still remain outside its purview.

During the first quarter of this fiscal year, the Ministry of Finance demonstrated strong performance. Unlike the previous fiscal year, no new supplementary grants were issued during the first quarter, meeting another important IMF condition.

The government has also revoked the permission to directly borrow from commercial banks without floating treasury bills. This issue was previously highlighted by The Express Tribune.

The Ministry also met the condition of restricting the increase in the government’s wage bill to below the inflation rate. Similarly, the government has met the condition of restricting the budget deficit and increasing the petroleum levy to a maximum of Rs60 per litre on petrol.

The four provincial governments have also met the conditions for ensuring Rs465 billion in spending on health and education during the first quarter. The actual spending exceeded this requirement, totalling Rs482 billion.

The IMF has also placed a condition that the Federal Board of Revenue (FBR) will share the details of asset declarations of civil servants with commercial banks for customer due diligence. So far, various commercial banks have raised observations in 15 cases, sources told The Express Tribune.

The FBR has met the condition to collect Rs1.98 trillion in taxes during the first quarter of this fiscal year. It has also achieved the target of adding only Rs32 billion to sales tax refunds during the first quarter, staying within the target of restricting refunds to Rs247 billion, as reported by FBR officials.

The FBR has not issued any new tax amnesty schemes or new tax exemptions during the first quarter, meeting two important structural benchmarks set by the IMF.

Published in The Express Tribune, October 27^th, 2023.

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