KARACHI: After two brief sessions, the “optimism surrounding the government and International Monetary Fund (IMF) talks lost steam” on Thursday, prompting the rupee to resume its downward slide.
At the end of the day, the rupee lost Rs 2.52 to settle at Rs271.35. However, during the intra-day trade, the local currency touched 272.17 against the US dollar.
On Wednesday, the rupee closed at Rs268.83.
The rupee has lost 44.92 percent since the beginning of the year.
According to capital market expert Saad Ali, who spoke with Geo.tv, reports that the government’s circular debt management plan (CDMP) was rejected by the International Monetary Fund (IMF) had shaken the market’s confidence.
According to Ali, these reports cast doubt on the possibility of a blockage in the ongoing talks between the government and the IMF.
A mission from the International Monetary Fund (IMF) is currently in Pakistan to discuss the ninth review. These talks will last until February 9, after which a staff-level agreement is anticipated between the two parties.
Fund rejects circular debt management plan
The News reported earlier today that the IMF had rejected the government’s CDMP and asked the government to raise the electricity tariff by Rs12.50 per unit to limit the additional subsidy to Rs335 billion for the current fiscal year.
The Washington-based lender called the revised CDMP “unrealistic” on the second day of technical talks because it is based on incorrect assumptions. Therefore, in order to limit the losses suffered by the cash-strapped power sector, the government will need to make additional adjustments to its policy prescription.
After resolving a fiscal gap with the IMF and the Finance Ministry, the upcoming minibudget will finalize a variety of additional taxation measures.
An increase of Rs952 billion in the monster of circular debt is anticipated by the revised CDMP for the current fiscal year, compared to an earlier estimate of Rs1,526 billion.
On Wednesday, the government presented the IMF’s high-ranking officials with a revised plan that demonstrates that, despite raising the power tariff by Rs7 per unit through quarterly tariff adjustment in the first two quarters of 2023 and Rs1.64 for the third quarter from June to August, the government required an additional subsidy of Rs675 billion.
According to sources who spoke with the publication, “The IMF has opposed the specific basis of the revised CDMP and asks the government to raise the tariff in the range of Rs11.50 to Rs12.50 per unit, so that the requirement for additional subsidy could be reduced to half from its existing levels of Rs675 billion for the current fiscal year.”
The government’s calculation of its Rs675 billion additional subsidy requirement for the current fiscal year was also questioned by the IMF. Since the government has understated the exchange rate used to calculate the revised CDMP, the plan would be altered using the current rate.
The report says that the new debt management plan wants to keep DISCOs’ losses to 16.27 percent on average this fiscal year.
In contrast to earlier estimates of Rs65 billion made on the eve of the previous summer, the government now anticipates that it will be able to recover charges for Fuel Price Adjustment (FPA) that were postponed last summer by Rs20 billion.
IPPs stock payment will save Rs11 billion in markup, and the GST and other taxes that are collected will help recover Rs18 billion this fiscal year.
Up until the end of FY2023, the circular debt is expected to be around Rs2,113 billion, which includes the amount that is parked in the Power Holding Limited (PHL), Rs765 billion, Rs1,248 billion that is due to power producers, and Rs100 billion that is due to fuel suppliers.
