The government has decided, in-principle, to borrow a hefty amount of Rs. 200 billion from Islamic banks to pay back nearly 30 percent of the outstanding circular debt which currently stands at Rs. 670 billion.
The decision was taken on Tuesday in the Economic Coordination Committee (ECC) meeting which was chaired by the Finance Minister Asad Umar.
The attendees of the meeting agreed upon pledging public properties to acquire the loans from Islamic banks.
It was still unclear how the principal amount would be returned and who will bear the cost of debt servicing.
At current rates, the government has to pay as much as Rs. 20 billion annually in debt servicing on Rs. 200 billion in loans.
Despite all the bashing, the incumbent government has decided to implement the tried and tested policy of the Pakistan Muslim League Nawaz (PML-N) government.
The policy was simple – take loans from commercial banks and put the money in the Power Sector.
The PTI government, especially the finance minister has been very vocal against PMLN policy stating that it was only a temporary solution and the circular debt will double up soon if the line losses and power theft was not controlled.
He was absolutely right to suggest that. The question is why the PTI government is not applying the suggestions it used to give the previous ruling party.
The total size of the circular debt stands at Rs. 1.27 trillion. This includes Rs. 607 billion that the previous governments of the PML-N PPP had borrowed from the banks but parked in a holding company and the previously mentioned outstanding debt amount.