$6.7b bailout package: IMF tranche may hit snags as govt decides to freeze power tariffs

Finance minister insists the move will not derail the IMF loan programme .

ISLAMABAD:

As the calls for the prime minister’s resignation rise to a crescendo, the government has taken another populist decision in a bid to taper off anti-government sentiments. The government has decided not to increase electricity tariffs, Finance Minister Ishaq Dar told The Express Tribune on Wednesday.

The decision may create problems for Islamabad as it seeks to get the International Monetary Fund (IMF) to approve another tranche of the $6.7 billion bailout package. However, the finance minister insisted that it would not derail the IMF loan programme, the fourth review of which, according to him, will be completed soon.



The IMF has asked Pakistan to increase power tariffs by 7% before the global lender’s Executive Board meets to approve the fifth $550 million tranche. In September last year, Pakistan signed a 36-month Extended Fund Facility of $6.7 billion programme which stipulated introduction of critical reforms in areas of energy, taxation and privatisation of state-owned entities.

The government’s move to freeze the tariffs also comes on the heels of the cabinet’s decisions to lift the ban on recruitments in the public sector and return money state enterprises had earned by overcharging power consumers.



As protests by the Pakistan Tehreek-e-Insaf (PTI) and Pakistan Awami Tehreek (PAT) enter their 42nd day, the government has started taking populist decisions which, analysts say, do not bode well for the commitments made to the IMF.

The finance minister has made repeated pleas to PTI chairman Imran Khan, urging him to call off his protest sit-in which, the minister said, was hindering the progress of national economy. “Please have mercy on the nation and its economy,” he said at a news conference on Wednesday.



The government says the ongoing political unrest has delayed foreign receipts worth $2.4 billion, generated through the issuance of Sukuk bonds and floatation of shares of the Oil and Gas Development Company Limited (OGDCL) in addition to the fifth IMF loan tranche.

According to the finance minister, the government is looking to raise $850 million by issuing OGDCL bonds. For this purpose road shows will be held next month, he said. Similarly, preparations to issue $1 billion worth of Sukuk bonds are under way.

Dar said 80% of the fourth review of the IMF programme was already completed. “But a few decisions could not be made due to PTI and PAT sit-ins,” he said. “Under current circumstances, it is not wise to increase power tariffs.”

Talking to The Express Tribune, a finance ministry official said that the government was trying to convince the IMF that raising power tariffs right now would only fuel anti-government sentiments.

Due to delays created by the political unrest, the IMF proposed clubbing the fourth and fifth review of the loan programme, he said. “We rejected this proposal,” he said. He hoped that the global lender would convene its Executive Board meeting in the last week of October and approve the next loan tranche.


Published in The Express Tribune, September 25^th, 2014.