The International Monetary Fund (IMF) has not endorsed the government’s proposal to retire circular debt in the petroleum sector, leading to a delay in the plan’s approval.
The Express Tribune reported that the proposal, presented to Prime Minister Shehbaz Sharif and then to the IMF on Friday, suggested utilising higher-than-normal dividends from state-owned companies to settle approximately Rs1 trillion in circular debt over the next five years.
For the upcoming fiscal year, the government had aimed to retire Rs170 billion of the petroleum sector’s circular debt, including Rs19 billion from Pakistan State Oil (PSO). However, the IMF raised concerns about the significant increase in PSO’s share price, which surged by 133.1% since July 2024, despite the company facing substantial operational challenges.
In contrast, shares of financially stable firms like Oil and Gas Development Company (OGDC) and Pakistan Petroleum Limited (PPL) increased by 57% and 45%, respectively. This abnormal movement prompted the IMF to postpone approval of the plan until after the budget for further review.
In response to these concerns, the government has excluded PSO from the circular debt retirement strategy.
IMF officials also expressed reluctance to allow further increases in power subsidies, suggesting a cap of Rs1.04 trillion, equivalent to 0.8% of the country’s GDP. The Power Division had initially requested an additional Rs180 billion, but the IMF remains firm on limiting these subsidies.
Meanwhile, the finance ministry has also reduced other subsidies in the upcoming budget to create room for addressing contingent liabilities.
