IMF rejects Pakistan’s circular debt management plan, calls for an increase in electricity tariff

The International Monetary Fund(IMF) review mission has rejected Pakistan’s revised Circular Debt Management Plan(CDMP). It has called on the Pakistan government to increase the electricity tariff in the range of Pakistan Rupees(PKR) 11-12.50 per unit to restrict the additional subsidy at PKR 335 billion for the current fiscal year.

Circular debt occurs when one entity facing problems with its cash inflows does not make payments to its suppliers and creditors.

The IMF has called the revised CDMP “unrealistic”, which is made on the basis of certain wrong assumptions. The Pakistani government will have to make changes in its policy prescription to restrict the losses of the power sector.

Minister of State for Finance statement

Talking to the media, 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 afterward the policy levels will be held to finalize the Memorandum of Financial and Economic Policies (MEFP) document next week, she concluded.

The IMF and Pakistan’s Ministry of Defence will work out a gap on the fiscal front after which various additional taxation measures will be finalized through the upcoming mini-budget. The revised CDMP has called for an increase in the circular debt to the tune of Rs 952 billion for the current fiscal year against an earlier projection of Rs. 1,526 billion. The Pakistan government shared its revised CDMP with the IMF high-ups here on Wednesday.

The International Monetary Fund review mission led by Nathen Porter arrived in Islamabad on Monday and both sides will continue to hold talks to complete the pending ninth review under the USD 7 billion Extended Fund Facility (EFF).

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