The International Monetary fund has rejected Pakistan’s Circular Debt Management Plan and termed it unrealistic. They have urged the government of Pakistan to increase the electricity tariffs to the range of PKR 11-12.50 to restrict the additional subsidy of PKR 335 billion for the current fiscal year.
The International Monetary Fund sent a review mission to Islamabad to complete the pending ninth review under the USD 7 billion Extended Fund Facility.
The News International reports explaining the mechanics behind the Circular debt, stating that the situation arises when one entity is facing issues with cash inflows and cannot make payments to their creditors and suppliers. Accordingly, the IMF pointed out that Pakistan’s Circular Debt Management programme is based on wrong assumptions.
News International states that the IMF requires the government of Pakistan to make certain changes to its policy prescription to restrict losses in the power sector.
Accordingly, the IMF review mission that landed in Islamabad on Monday, January 30, interacted with the government of Pakistan. Nathen Porter headed the IMF mission. The Ministry of Defence of Pakistan and the International Monetary Fund are filling the fiscal gaps. Following this, they will finalize the additional taxation measures.
The revisions in the CDMP call for the Pakistan government to increase the circular debt to Rs 952 Billion for the current financial year. This is in contrast to the earlier projections of Rs 1526 Billion.
The government of Pakistan has shared the revisions of the Higher authorities of the International Monetary Fund. As per the earlier revisions, The government needs an additional subsidy of Rs 675 Billion, even though they increased power tariffs to PKR 7 per unit through quarterly tariff adjustments.
At this, the International Monetary fund has questioned the government of Pakistan on how they are calculating their subsidy requirement.