IMF Rejects Pakistan’s Debt Management Plan
PAKISTAN: The IMF on Thursday rejected Pakistan’s contingency plan to manage circular debt and asked authorities to raise the electricity tariff by Rs 12.50 per unit as they discussed the ongoing bail-out. According to a report the electricity tariff raise is to restrict the losses of the cash-bleeding power sector. The IMF has called the revised CDMP “unrealistic” which is made based on certain wrong assumptions.
A team from IMF is currently in Pakistan to complete the pending ninth review under the $7 billion Extended Fund Facility (EFF), following which a staff-level agreement is expected between the two sides. The newly developed debt management plan seeks to restrict losses of power distribution companies to 16.27% on average during the fiscal year- a media house was quoted as saying.
The revised CDMP has called for an increase in the circular debt to the tune of ₹952 billion for the current fiscal year against an earlier projection of ₹1,526 billion. The Pakistan government shared its revised CDMP with the IMF on Wednesday. As per the CDMP, the government needed an additional subsidy of ₹675 billion despite increasing the power tariff in the range of PKR 7 per unit through quarterly tariff adjustment in the first two quarters of 2023 and PKR 1.64 for the third quarter from June to August.
In view of the upcoming elections, Pak PM Shebhaz Sharif was against the hike in tax rises and subsidy-slashing demands made by the IMF.
Circular debt occurs when one entity facing problems with its cash inflows does not make payments to its suppliers and creditors.