IMF not impressed by plan to contain circular debt

The Fund rejects the Circular Debt Management Plan and asks to increase the power tariff by Rs12.5 per unit to fill the financial gap

ISLAMABAD: The International Monetary Fund (IMF) has pointed out serious discrepancies in the government’s revised Circular Debt Management Plan (CDMP) for the power sector, and has asked authorities to increase the power tariff by Rs 12.5 per unit to contain the subsidy at Rs 335 billion, The News reported on Thursday. 

The newspaper reported that the government shared the CDMP with the IMF on Wednesday. The plan forecasted an increase of Rs 952 billion in circular debt and said the government would need a Rs 675 billion subsidy in the power sector despite raising the tariff by Rs 7 per unit. 

During the first review of the plan prepared by the power division, the IMF reportedly asked for the withdrawal of electricity subsidies for exporters and other sectors. It also did not accept the planned Rs 675 billion in subsidies and added that the plan understated exchange rate figures. The real estimate of the subsidy would be much higher.

The IMF believed that there was no room for fiscal adjustments and the Rs 675 billion financial servicing will have to be paid by electricity tariffs by increasing it by Rs 12.5 per unit, a source told The News

The Fund’s observations spell trouble for the government as it looks to satisfy the lender. Pakistan’s economic survival is contingent upon the 10-day long talks since all other nations have tied any support to Pakistan with the country meeting IMF reform targets.

Adding to the government’s trouble is that Prime Minister Shehbaz Sharif has promised subsidies to some exporters. 

After the rupee depreciation, power sector reform has become a virtually non-negotiable area for the IMF and the government may not be able to get any major relief here.

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Momina Ashraf
Momina Ashraf
Momina Ashraf is an assistant editor at Profit.



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