Pakistan plans to revive stalled IMF loan programme by increasing its power tariff

• Government to hike power tariff by Rs3.30 to plug circular debt and revive IMF loan programme
• Pakistan's circular debt expected mount up to Rs2,805 billion till June end, according to a recent government projection
• A hike of Rs3.30 per unit had been agreed on by the government in phases. The first hike is expected to be announced in the next few days

ISLAMABAD: The Pakistan government will be increasing the power tariff by Rs1.90 per unit to revive the stalled IMF loan programme under the $6 billion Extended Fund Facility (EFF), top official sources were quoted as saying by The News Friday.

Pakistan's circular debt will mount up to Rs2,805 billion till June end, according to a recent government projection. This will place the already depleting power sector into a severe cash constraint situation.

A hike of Rs3.30 per unit had been agreed on by the government in phases. The first hike of Rs1.90 per unit is expected to be announced in the next few days.

Read more: Pakistan inches closer to IMF programme revival

Increasing the power tariff is a remedy multilateral creditors, including the IMF, World Bank and Asian Development Bank, have often suggested in the past.

The PTI led government has already hiked the power tariff several times, but it has not helped.

Pakistan's mounting circular debt

Official documents available with The News revealed that the circular debt was persistently rising trends and it might escalate to Rs2,805 billion till the end of June 2021.

The circular debt had climbed to Rs2,150 billion during the last financial year 2019-20, indicating that the bleeding of the power sector surged by Rs538 billion just in 12 months from July 2019 to June 30, 2020.

This shows that the circular debt went up by Rs44.8 billion on a monthly basis in the last financial year. But the government had said the COVID-19 pandemic ballooned the circular debt in the second half of the last fiscal year. 

Read more: Why was there a blackout in Pakistan?

The government performance was also exposed as it claimed that the monthly accumulation of circular debt was curtailed at just Rs10 to 12 billion. However, it proved wrong because senior officials of the power division did not include all the heads while calculating the circular debt.

The increase in circular debt continued in the first five months (July-Nov) of the current fiscal year as it increased to Rs156 billion and it went up from Rs2,150 billion to Rs2,306 billion. So far, the circular debt went up by Rs31 billion on a monthly basis in the first five months.

The amount payable to IPPs is projected to grow from Rs1,038 billion at end June 2020 to Rs1,711 billion till end June 2021. “There is projection that the circular debt might increase by Rs499 billion in financial year 2020-21,” said an official.