Islamabad:
Pakistan and the International Monetary Fund (IMF) on Wednesday failed to break the impasse with a new controversial issue of permanently imposing an additional debt of 3.82 rupees per unit.
In response to the government’s decision to introduce a new levy for a period of eight months (March to October 2023), the IMF requested that the government remove $800 of circular debt held by government-paid companies. Asked the government to keep the levy as a fixed portion of the utility bill until paid off. Billions of rupees.
Meanwhile, confusion reigned on Wednesday when the Treasury took a different stance from the power division it told the IMF the day before.
This again underscored the lack of coordination among key government agencies and caused undue delays in reaching staff-level agreements with the IMF.
A meeting between Treasury Secretary Ishak Dar and IMF mission chief Nathan Porter ended with a note that the two would meet again to resolve the issue, according to people familiar with the talks. Dar leaves for Uzbekistan on Thursday (today) for a two-day official visit. During the meeting, the two sides also discussed the issue of the $11 billion external funding gap that the IMF had projected for this fiscal year.
Pakistan believes the gap will be less than $10 billion and is confident it will be able to close it with new commercial loans from the Gulf states. The IMF is already in contact with countries in the region about plans to expand new loans to Pakistan, including extensions.
Sources said the finance minister has asked his IMF to announce a staff-level agreement as the country has met more than 90% of the conditions. But the IMF said the additional debt of Rs 3.82 per unit was “important” in resolving the power sector’s circular debt, which climbed to Rs 2.4 trillion despite the sharp increase in electricity tariffs. .
His 10-day IMF staff-level visit ended on 9 February, with both sides still needing two weeks, but disagreements on key policy issues have yet to be resolved.
The additional debt issue is preventing the staff agreement from being completed as the IMF is reluctant to accept the government’s plan to impose the additional debt for only eight months. The IMF is demanding an additional Rs 3.39 per unit to recover a total of Rs 28.4 billion, but has already incurred a surcharge of Rs 43 per unit.
The previous day, the energy minister indicated that the government was ready to impose surcharges totaling Rs 3.82 per unit. According to multiple sources, the IMF told the government at its February 9 meeting that the Pakistani government would permanently reduce the surcharge for the next financial year to avoid dealing with the major contributors to the circular. I told him that I was notified that I had to withdraw. debt flow.
However, the Treasury Department said it was not aware of any settlement with the power sector because the additional charges could trigger lawsuits to stop collections.
The IMF said the government would consult the Ministry of Energy and the Ministry of Justice before paying him a surcharge of Rs 3.82 per unit.
The government has already agreed to impose a surcharge of Rs 3.82 per unit for the period from March to October, which will allow it to raise Rs 7.6 billion in the current financial year to invest in Power Holding Limited (PHL ) of the parked circular debt. At 800 crore rupees.
The PHL is a wholly-owned government entity, established for the purpose of securing financing for the power sector. The PHL regularly borrows from the commercial banks. The debt is guaranteed by the finance ministry and the proceeds are used to pay off liabilities of the power sector.
The PHL was used mainly because the power sector could not function owing to heavy amount of payables towards the IPPs and others. The obligation to pay to the IPPs is also guaranteed under the government’s policy.
To recover the mark-up portion of the loans, amounting Rs246 billion, there is already a surcharge of 43 paisa per unit levied in the consumer bill, which is not sufficient to cover mark-up charges of total loans.
On February 14, the finance ministry informed the federal cabinet that the IMF had set prior actions to recoup the deferred June and July 2022 fuel cost adjustments, starting March 1, 2023, to implement a surcharge of Rs3.82 per unit from March 1, 2023 and to withdraw recently announced subsidies to Zero-Rated Industry and agriculture subsidy packages from March.
Some of the cabinet members were of the view that it was high time that Pakistan should introspect instead of blaming the IMF and start taking painful policy decisions or else the country would never be free of its cycle of crises.
The cabinet members called for reforming the bloated state-owned enterprises, which drain billions from the government every month.
As of December 31, 2022, around Rs224 billion has been paid as interest charges from the electricity generation portion, which the IMF now wants to eliminate to reduce the future circular debt flows.
No cash flow exists to service the principal amount of debt. In order to retire the old stock, the government will have to book the circular debt as part of the public debt.
The government’s fiscal woes would further heighten, including in the power sector due to an anticipated around 3% increase in the interest rates by the SBP. The government on Wednesday borrowed from the banks at 19.95% interest rate for three months, after banks refused to lend loans at 18% rate.
