The issue of circular debt
The near-term economic outlook is positive as the government continues its reform momentum
CREATIVE COMMONS
The latest World Bank report titled “Pakistan Development Update”, conveys a detailed account of the progress — or lack thereof — the country has made in the last few years, highlighting that the near-term outlook is positive as the government continues its reform momentum. According to the report, the GDP growth is expected to touch 4.5 per cent — less than what the government has targeted — and is likely to go up to 4.8 per cent in the next fiscal year. It has appreciated Pakistan for achieving “comfort levels” of foreign exchange reserves that were aided by remittances and CSF flows. However, the one thing that is likely to irk the government and reduce, in large part, much of the fiscal consolidation it has achieved in the past few years is the issue of circular debt.
Having booked the amount in the final year of the PPP government and disowning it in its own budget, the PML-N has been able to reduce the fiscal deficit. The point, however, is that circular debt is a persistent issue and exists — even if it is not ‘accounted for’ in the books. The power sector continues to be plagued with inefficiency and corruption. Added to this are the huge receivables and pending payments, coupled with hours-long power outages, and the government has itself a white elephant. The World Bank has said that the circular debt amount will have to be “ultimately financed through the budget”, which means that either the government will impose additional taxes and surcharges, or keep the amount excluded from the budget books till its last year in power. To resolve this serious problem, all stakeholders need to play their roles. The piling circular debt is in large part accrued due to the inability of consumers to clear their dues. This eventually leads to honest consumers paying more than what they bargained for, to compensate for the losses. Electricity theft is a longstanding issue and goes hand in hand with the corruption in power companies. We have examples from within the country where a change in bill collection methods led to a reduction in losses. Why can’t such methods be applied everywhere in the country? It is not just our rulers who need to play their roles. The public at large has an important part to play in resolving this crisis as well.
Published in The Express Tribune, November 13th, 2015.
Having booked the amount in the final year of the PPP government and disowning it in its own budget, the PML-N has been able to reduce the fiscal deficit. The point, however, is that circular debt is a persistent issue and exists — even if it is not ‘accounted for’ in the books. The power sector continues to be plagued with inefficiency and corruption. Added to this are the huge receivables and pending payments, coupled with hours-long power outages, and the government has itself a white elephant. The World Bank has said that the circular debt amount will have to be “ultimately financed through the budget”, which means that either the government will impose additional taxes and surcharges, or keep the amount excluded from the budget books till its last year in power. To resolve this serious problem, all stakeholders need to play their roles. The piling circular debt is in large part accrued due to the inability of consumers to clear their dues. This eventually leads to honest consumers paying more than what they bargained for, to compensate for the losses. Electricity theft is a longstanding issue and goes hand in hand with the corruption in power companies. We have examples from within the country where a change in bill collection methods led to a reduction in losses. Why can’t such methods be applied everywhere in the country? It is not just our rulers who need to play their roles. The public at large has an important part to play in resolving this crisis as well.
Published in The Express Tribune, November 13th, 2015.