ISLAMABAD: According to a report that was published on Thursday by The News, the International Monetary Fund (IMF) has rejected the government’s circular debt management plan (CDMP) and asked the authorities to raise the electricity tariff by Rs12.50 per unit in order to limit the additional subsidy to Rs335 billion for the upcoming fiscal year.
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.
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.
The IMF and the Money Service will resolve a hole on the financial front after which different extra tax collection estimates will be finished through the impending smaller than expected spending plan.
Debt management plan
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.
Mini-budget
On the fiscal front, the government announced its plan to issue a presidential ordinance revealing a miniature budget.
The FBR has proposed increasing the Flood Levy from 1% to 3%, enacting a second levy to deduct between 65 and 70 percent of the banking sector’s high profits from exchange rate manipulation, and increasing the rates of certain withholding taxes.
The IMF has discussed the possibility of providing a flood adjuster, but it has asked the government to decide on qualitative taxation measures in order to bring the primary deficit to a surplus of Rs153 billion for the current fiscal year, or 0.2% of GDP.
‘Elite class to share burden’
Aisha Ghaus Pasha, State Minister for Finance, stated in an interview with journalists that while the recovery was slow, the bottom line was that the country could not afford subsidies at this time.
She stated that while the government would minimize the burden placed on common consumers, the elite and affluent class would be required to contribute by covering the entire cost of electricity generation.
According to her, the Power Division presented its strategy for addressing the circular debt. She came to the conclusion that the Memorandum of Financial and Economic Policies (MEFP) will be finalized next week at the policy levels, after which Pakistan and the IMF will continue the technical-level talks in the coming days.
