The International Monetary Fund (IMF) demanded Pakistan increase a power tariff of approximately Rs 3 per unit on consumers to reclaim Power Holding Company markups.
In answer to the question of refinancing a $700 million loan from the China Development Bank, a government official expressed optimism that all matured Chinese loans will be refinanced swiftly (CDB).
According to insiders, however, two other commercial loans totaling $500 million and $800 million are expected to be refinanced. Pakistan hopes to restructure up to $2 billion in Chinese loans by the end of February or the first week of March 2023. As one of the primary obstacles to reaching a staff-level agreement with the IMF, the cash-hungry power industry has been challenging to overcome.
The government must determine whether to levy another tax on the electricity industry (SLA) to go toward a long-awaited staff-level agreement.
Officials from Pakistan and the international lender met remotely on Tuesday to advance the signing of the SLA. During this meeting, both parties addressed the possibility of implementing an additional surcharge, but the exact amount has not yet been determined.
The IMF requires an immediate power tariff of over Rs3 per unit in response to the industry’s unprecedented losses.
The Fund has informed the Pakistani side that the long-delayed changes in this sector must be executed immediately if the country is to improve and if the cash-strapped electricity sector is to continue operating.
For the most recent fiscal year, 2021–2022, the government paid out total accumulated losses of Rs. 1,600 billion, which exceeded the budget predictions for defense spending. The colossal circular debt and losses in the power sector would bring the Pakistani economy to its knees.
When contacted, one of the Pakistani negotiators stated that “the surcharge problem with the IMF was still being discussed.” There is still dispute inside the government on settling this persistent issue, which has become one of the biggest obstacles to getting a staff-level accord.
However, there is a divergent opinion among the administration that the electricity surcharge should be introduced immediately since the IMF must be revived soon. The IMF did not have faith in the Ministry of Finance, so they requested guarantees from the Prime Minister’s Office that there will be no deviations during the remainder of the IMF program. There is yet another issue that haunts economic policy decision-makers more intensely.
Obtaining confirmation from all potential external financing sources; imposing additional power surcharges and raising the policy rate following the IMF’s strict guidelines for reviving Pakistan’s faltering economy; and releasing a $1 billion tranche under the $6.15 billion Extended Fund Facility remained to be resolved.
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