Power tariff: Govt misses IMF deadline, loan tranche in jeopardy
International lender had asked Pakistan to implement the increase by Thursday.
ISLAMABAD:
The government has missed the International Monetary Fund’s deadline to notify up to a 7% increase in electricity prices by Thursday, sustaining the first and serious blow to its three-year $6.6 billion Extended Fund Facility within one year of implementation.
The reasons for delaying the notification was more political than economic in nature as the government feared backlash in the midst of ongoing sit-ins staged by Pakistan Tehreek-e-Insaf (PTI) and Pakistan Awami Tehreek (PAT), according to sources in the Ministry of Finance and Water and Power.
Their protests – that recorded their 28th day on Thursday – have made it difficult for the government to implement the 4% increase in power tariffs and another 3% on account of special surcharge to recover the losses due to delay in increasing tariffs, they added. Originally, the increase was proposed to be 4% with effect from July.
Due to the government’s move, the IMF’s Executive Board will not meet on September 26 to approve the fifth loan tranche, according to officials. The body has set the notification of increase in power tariffs as prior-action that has to be implemented for seeking an Executive Board meeting to approve the fifth loan tranche of $550 million.
Owing to differences over the timing and percentage of the increase in prices, Pakistan and the IMF could not conclude the fourth round of talks that held from August 6 to 18 in Dubai. This was for the first time since September last year when Pakistan signed the three-year bailout package that both sides could not conclude the talks.
Finance Minister Ishaq Dar recently blamed PTI for the possible delay in release of the next tranche.
After the Dubai round, Pakistan and the IMF continued discussions via video conferences with the aim of securing a timely completion of the fourth review but this effort also remained fruitless, according to officials in the Ministry of Finance.
According to officials, the Washington-based lender wanted the increase to be implemented from July – a demand that was rejected by Pakistan.
Unlike the 2008 three-year Stand By arrangement of $11 billion that also derailed prematurely, this time the IMF has distributed the $6.6 billion in 12 equal tranches aimed at ensuring implementation of its desired policies, according to analysts.
The IMF has so far disbursed $2.2 billion in four equal tranches. Experts said that the delay in release of the next tranche will not adversely affect the country’s foreign currency reserves. However, it will work as a spoiler to Pakistan’s economic relations with other international lenders, they added.
They said Pakistan may face difficulties in seeking loans from other lenders, mainly the World Bank and the Asian Development Bank.
The spokesman of Ministry of Water and Power was not available for comments, while the senior official of Ministry of Finance said the government was still trying to come up with a mechanism to implement the increase.
According to another official of the finance ministry, the increase may be implemented from next month. However, it will again depend on whether the PTI and PAT call off their protests.
The IMF staff would present its report to the Fund’s Executive Board only after the increase in power tariffs. Upon approval of the report, the international lender will disburse the fifth loan tranche of over $550 million.
Published in The Express Tribune, September 12th, 2014.
The government has missed the International Monetary Fund’s deadline to notify up to a 7% increase in electricity prices by Thursday, sustaining the first and serious blow to its three-year $6.6 billion Extended Fund Facility within one year of implementation.
The reasons for delaying the notification was more political than economic in nature as the government feared backlash in the midst of ongoing sit-ins staged by Pakistan Tehreek-e-Insaf (PTI) and Pakistan Awami Tehreek (PAT), according to sources in the Ministry of Finance and Water and Power.
Their protests – that recorded their 28th day on Thursday – have made it difficult for the government to implement the 4% increase in power tariffs and another 3% on account of special surcharge to recover the losses due to delay in increasing tariffs, they added. Originally, the increase was proposed to be 4% with effect from July.
Due to the government’s move, the IMF’s Executive Board will not meet on September 26 to approve the fifth loan tranche, according to officials. The body has set the notification of increase in power tariffs as prior-action that has to be implemented for seeking an Executive Board meeting to approve the fifth loan tranche of $550 million.
Owing to differences over the timing and percentage of the increase in prices, Pakistan and the IMF could not conclude the fourth round of talks that held from August 6 to 18 in Dubai. This was for the first time since September last year when Pakistan signed the three-year bailout package that both sides could not conclude the talks.
Finance Minister Ishaq Dar recently blamed PTI for the possible delay in release of the next tranche.
After the Dubai round, Pakistan and the IMF continued discussions via video conferences with the aim of securing a timely completion of the fourth review but this effort also remained fruitless, according to officials in the Ministry of Finance.
According to officials, the Washington-based lender wanted the increase to be implemented from July – a demand that was rejected by Pakistan.
Unlike the 2008 three-year Stand By arrangement of $11 billion that also derailed prematurely, this time the IMF has distributed the $6.6 billion in 12 equal tranches aimed at ensuring implementation of its desired policies, according to analysts.
The IMF has so far disbursed $2.2 billion in four equal tranches. Experts said that the delay in release of the next tranche will not adversely affect the country’s foreign currency reserves. However, it will work as a spoiler to Pakistan’s economic relations with other international lenders, they added.
They said Pakistan may face difficulties in seeking loans from other lenders, mainly the World Bank and the Asian Development Bank.
The spokesman of Ministry of Water and Power was not available for comments, while the senior official of Ministry of Finance said the government was still trying to come up with a mechanism to implement the increase.
According to another official of the finance ministry, the increase may be implemented from next month. However, it will again depend on whether the PTI and PAT call off their protests.
The IMF staff would present its report to the Fund’s Executive Board only after the increase in power tariffs. Upon approval of the report, the international lender will disburse the fifth loan tranche of over $550 million.
Published in The Express Tribune, September 12th, 2014.