Ballooning circular debt
The energy sector’s circular debt has reached Rs5.73 trillion as of end November, or 26% more in barely two months. The huge increase in the combined debt of electricity and gas sectors is even more surprising when we consider the large price increases forced on consumers last year, including during the period in question.
The increase is just the latest illustration of the abject failure of the government’s debt management policies. The IMF had said after the first review of its bailout package that “immediate action” to address the debt was necessary based on earlier government data, which put the debt at about Rs4 trillion, or almost 4% of GDP. The government’s response has been to allow that figure to rise past 5.3%. However, as we noted, it is not ‘immediate inaction’, but a series of poorly planned actions that have allowed the debt to grow. While the government deserves the lion’s share of the blame, the IMF, World Bank and others who employ armies of economists have clearly not been able to offer good solutions either. Price increases alone are not the solution, as energy prices are going beyond the affordability of many lower-income Pakistani families. Mismanagement must be a focal point — the electricity distribution companies have run huge losses in recent years, even though five of the larger ones were consistently profitable until 2022.
But the interim government is entirely ignoring management reforms and instead trying out an alternative reality option where the addition of fixed charges on utility bills should not be considered a price increase, no matter how much citizens, economists and the government’s own Bureau of Statistics disagree. With elections around the corner, at least we should be able to see some concrete actions being taken soon. However, assuming a new government has taken charge by this time next month, this would still depend on it hitting the ground running with those overdue reforms, instead of trying to invent new and even less believable definitions for taxes.
Published in The Express Tribune, January 18th, 2024.
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