It hardly came as a surprise when the government missed the International Monetary Fund’s (IMF) deadline to notify up to a seven per cent increase in electricity prices, casting doubt on the country receiving its next tranche of the three-year, $6.6-billion Extended Fund Facility (EFF). The international lender, through the EFF, had set forth structural reforms as part of conditions in return for the assistance. The reforms included privatisation of loss-making state entities and notifying a four per cent increase in power tariffs — with another three per cent now being added on account of special surcharge to recover losses caused by the delay in implementing the increase.
The delay in notifying the increase hardly raised eyebrows as the government, facing massive protests in Islamabad by Imran Khan-led PTI and Tahirul Qadri’s PAT on account of alleged election rigging, feared further public backlash if it decided to raise power tariffs. The situation has now pitted the government in a dark corner. While raising electricity prices will take its toll on every citizen, the reform had been promised to the IMF as part of the loan agreement. Not implementing it will be a reminder of the chequered history that has always strained relations between Pakistan and international lenders. Knocking on doors the next time when the country is facing a weak balance of payments position might not be welcomed.
Suffice it to say that the IMF will not want to approve the fifth tranche if the tariffs are not increased. Until the protests ends, the government will probably not be able to increase the power rates. It is amazing to see that even the government’s economic decisions are seemingly influenced by groups that can make the loudest noise. Tax concessions and subsidies are offered that way. Local industries will even lobby for protection — citing their nationality as a trump card — over, in some cases, cheaper imports. It is time the government manned up, made some tough decisions and acted out on at least some of its promises.
Published in The Express Tribune, September 16th, 2014.
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The electric rate isn't the only broken promise - Pakistan was suppose to take meaningful steps at taxing the rich, collecting energy bills and reducing the infamous "circular debt" which is a nothing but a fancy term to describe govt/business elite who don't pay their bills. IMF should defer further loans until Pakistan honors it's commitments.