IMF rejects Pakistan’s debt-management strategy, calls it “unrealistic”

The visiting IMF review mission has rejected Pakistan’s revised Circular Debt Management Plan (CDMP) and asked the government to raise the electricity tariff by PKR 12.50 per unit in order to restrict the additional subsidy at PKR 335 billion for the current fiscal year.

The IMF has termed the revised CDMP as “unrealistic”, which is based on certain wrong assumptions. So the government will have to bring more changes in its policy prescription to restrict the losses of the cash-bleeding power sector. The IMF and Ministry of Finance will work out a gap on the fiscal front after which different additional taxation measures will be finalised through the upcoming mini-budget.

The revised CDMP envisages an increase in the monster of circular debt to the tune of PKR 952 billion for the current fiscal year against an earlier projection of PKR 1,526 billion. The Pakistani government shared its revised CDMP with the IMF high-ups on Wednesday, which shows the government required an additional subsidy of PKR 675 billion despite raising the power tariff in the range of Rs7 per unit through quarterly tariff adjustment in the first two quarters of 2023 and PKR 1.64 for the third quarter from June to August.

“The IMF has opposed the certain basis of the revised CDMP and asks the government to raise the tariff in the range of PKR 11 to PKR 12.50 per unit, so that the requirement of additional subsidy could be reduced to half from its existing levels of PKR 675 billion for the current fiscal year,” said the top official sources.

The IMF also raised questions on how the government calculated its additional subsidy requirement figure of PKR 675 billion for the current fiscal year. The government has understated the exchange rate for calculating the revised CDMP, so with the existing rate the plan would be changed.

The revised CDMP seeks to restrict losses of DISCOs to 16.27 percent on average during the current fiscal year. The government envisaged the target to recover Fuel Price Adjustment (FPA) charges deferred last summer to fetch PKR 20 billion into the kitty against estimates of PKR 65 billion made on the eve of the last summer. The markup saving due to IPPs stock payment will bring PKR 11 billion. The GST and other taxes on a collection basis will help recover PKR 18 billion in the current fiscal year. The circular debt is estimated to hover around PKR 2,113 billion till the end of FY2023, including the amount parked in the Power Holding Limited (PHL), PKR 765 billion and PKR 1,248 billion payables to power producers and PKR 100 billion to fuel suppliers.

On the fiscal front, the government shared its plan for unveiling a mini-budget through Presidential Ordinance. The FBR has proposed Flood Levy from 1 to 3 percent, imposing another levy to deduct 65pc to 70pc tax from lofty profits earned by the banking sector through exchange rate manipulation and hiking rates of certain withholding taxes.

The IMF has discussed the possibility of providing an adjuster for flood expenditure but asked the government to take the decision on qualitative taxation measures to bring the primary deficit to make it surplus at a level of 0.2 percent of GDP equivalent to PKR 153 billion for the current financial year.

Talking to journalists, Minister of State for Finance Aisha Ghaus Pasha said that the cost of power generation was on the higher side while the recovery was less, so the bottom point was crystal clear that the country now could not afford subsidy. She said the government would not put the burden on common consumers as much as possible but the elite and affluent class would have to contribute by paying the full cost of electricity generation.

She said the Power Division presented its plan to tackle the circular debt. Pakistan and the IMF will continue technical-level of talks in the next couple of days and then afterwards the policy levels will be held to finalise the Memorandum of Financial and Economic Policies (MEFP) document next week, she concluded.

Source: The News International