Circular debt spiral

The burden of the circular debt cannot be solely attributed to the caretaker government


May 23, 2024

print-news

Pakistan’s inability to control its circular debt in the power sector has reached the point where it can’t even rein in the pace of increase. Barely halfway through the current fiscal year, the government has blown past the full year target of Rs2.31 trillion. Circular debt increased by Rs325 billion in the first seven months of the current fiscal year, closing January at Rs2.636 trillion.

The burden of the circular debt cannot be solely attributed to the caretaker government. Even the Shehbaz-led PDM government witnessed a rise in debt in its last year, despite collecting an additional Rs116 billion from consumers during the same period. Failure to control the debt is also going to come up during meetings with the IMF, which had conditioned its loan programme partly on the energy sector reforms, including debt reduction.

The escalating debt crisis, coupled with sluggish growth in government revenue, poses a significant threat to the country’s economic sustainability. It is imperative for the government to take decisive actions to tackle poor recoveries, high system losses, and pending generation costs, and to implement necessary reforms to bolster the sector’s sustainability.

The IMF has also noted that the massive tariff increase was followed by lower-than-expected recoveries. While recoveries are technically the responsibility of distribution companies, failure to punish managers at these companies for their failures, or even suggest governance reforms, is a failure for policymakers. We have not even begun to speak of the structural reforms the government claims it will undertake, including moving captive power demand to the electricity grid and expanding renewable energy capacity, which will actually cost more money to implement before they can even begin helping reduce costs.

We are now in a situation where the government can’t collect the money it is owed or save money with readymade solutions today, and instead wants to spend money we don’t have — and won’t have without IMF support — to save money tomorrow.

Published in The Express Tribune, May 23rd, 2024.

Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.

 

COMMENTS

Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ