The International Monetary Fund (IMF) has rejected the circular debt management plan (CDMP) the government presented and asked the authorities to raise the electricity tariff by Rs12.50 per unit.
A staff-level agreement is anticipated between the two parties following the IMF mission’s current discussions in Pakistan regarding the ninth review, which will last until February 9; the IMF team has rejected the CDMP plan and termed it as “unrealistic,” which is based on some incorrect assumptions, during the second day of technical discussions. Therefore, the government will need to adjust its recommended course of action to limit the losses in the cash-strapped power sector.
Plan to Manage Debt.
The circular debt is expected to grow by Rs952 billion for the current fiscal year, up from an earlier projection of Rs1,526 billion.
Despite raising the power tariff by up to Rs7 per unit through quarterly tariff adjustment in the first two quarters of 2023 and up to Rs1.64 for the third quarter from June to August, the government needed an additional subsidy of Rs675 billion, according to the revised plan it shared with IMF officials on Wednesday.
According to sources, “the IMF has objected to the individual basis of the revised CDMP and asks the government to raise the tariff in the range of Rs11 to Rs12.50 per unit, to reduce the requirement of additional subsidy to half from its existing levels of Rs675 billion for the current fiscal year.
The government’s additional subsidy requirement figure of Rs675 billion for the current fiscal year was also a subject of controversy from the IMF. In addition, the revised CDMP was calculated using an understated exchange rate by the government, so the plan would change if the rate remained as is.
According to the report, the newly created debt management plan aims to keep DISCOs’ losses to an average of 16 points 27 percent for the current fiscal year.
In contrast to estimates of Rs65 billion made on the eve of the previous summer, the government has set a target to recover Fuel Price Adjustment (FPA) charges that were postponed.
While the GST and other taxes on a collection basis will help recover Rs18 billion in the current fiscal year, the markup savings due to IPPs stock payment will bring in Rs11 billion.
The circular debt is predicted to be around Rs. 2,113 billion until the end of FY2023, which includes the money held in Power Holding Limited (PHL), as well as the Rs. 765 billion, Rs. 1,248 billion, and Rs. 100 billion payable to power producers and fuel suppliers.
Mini-Budget.
On the financial front, the government disclosed its strategy for releasing a mini-budget via a presidential ordinance.
The FBR has proposed raising the Flood Levy from 1 percent to 3 percent, adding a new tax to deduct 65 to 70 percent of the opulent profits made by the banking industry through exchange rate manipulation, and raising the rates of some withholding taxes.
The IMF has discussed the possibility of providing a flood expense adjuster. Still, it has also requested that the government decide on qualitative taxation measures to reduce the primary deficit to a level of surplus at 0 point 2 percent of GDP, or Rs153 billion, for the current fiscal year.
State Minister for Finance Aisha Ghaus Pasha told journalists that the cost of power generation was relatively high compared to the recovery, so it was crystal clear that the country could no longer afford subsidies.
She stated that the government would not place as much burden on average consumers as possible but that the elite and wealthy class would be required to pay the full cost of electricity generation.
She reported that the Power Division presented its strategy for addressing the circular debt. She concluded that Pakistan and the IMF would continue technical-level discussions over the next few days, followed by policy-level discussions to finalize the Memorandum of Financial and Economic Policies (MEFP) document the following week.
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