While Pakistan is grappling with a massive debt crisis and record-high inflation, the cash-strapped economy still aims to address the International Monetary Fund’s (IMF) concerns before implementing its new fuel subsidy plan.
Talking to Bloomberg TV about the country’s energy transition and debt crisis, Minister of State for Petroleum Musadik Malik said the lender had concerns about the government’s plan to raise fuel prices for wealthier motorists for subsidizing lower-income people.
“We want to make sure now that if we move forward, we take care of their (IMF’s) concerns and make sure that they completely understand what we are trying to do and why,” he said.
“We originally thought that it was a much simpler idea because previously negotiating with the IMF and the bank was also supporting the negotiations we put together a plan in which we charged a higher price for gas to the rich and a lower price to the poor. So in essence we were subsidizing the poor but charging more to the rich,” the minister explained.
The minister acknowledged that the IMF had some reservations and said the government was very open to sitting with the lender and making sure that it was satisfied with the fuel plan.
On plans for reducing circular debt, the minister said with the proposed fuel subsidy, the government was planning on charging the rich and industries a little extra and subsidizing the poor which would have taken care of the circular debt.
“But the regulator would not let us do that, so we very successfully got rid of that circular debt/debt which could not be financed/charged to the end consumers. But that only took care of the flow and didn’t contribute to the circular debt anymore”, he added.
“However, [with] the stock that we had, we thought that many of these companies owed each other a lot of money because most of the sector is dominated by state-owned enterprises and some of these companies had account payables while so had account receivables. So, our thinking was that we would actually do the equity swaps or issue dividends in payoff so that the circular debt or the debt that different companies owe is taken care of,” he explained, adding that “we’re coming up with the mechanism of issuing dividends and using those dividends to pay off the debts and clean the books”.
“It will take a little while, we are not in a rush. Our biggest problem was the escalating debt, and we have stopped. Right now, there is zero contribution to the circular debt,” he claimed.
“In terms of the stock that we have, we’re very comfortable that in a couple of months, we’d be able to sort it out. And we also want to make sure with [regards to] our Petroleum Scheme. We saw that the IMF had some queries and they had some concerns, so we want to make sure now that if we move forward, we take care of their concerns and make sure that they completely understand what we’re trying to do and why,” he added.
Regarding national elections, the minister said, “I think elections will take place towards the end of this year”.
“I think we had to make a bunch of very difficult decisions and as you mentioned, inflation is high. It’s a poor country with high inflation,” he said.
It was flirting with extreme economic difficulties when we took over. So we’ve been pushing the envelope and I think we’re trying to restructure the economy as we go along. So, we’re reasonably confident that as we move forward, we will provide relief, he added.
“We took a lot of debt to do what the government should be doing which is building infrastructure. And I think we were able to build an enormous infrastructure between 2013 and 2018,” he said when inquired about Pakistani markets’ hopes for future growth.
He also said, “I think it is now time that we have a new port. We have the road infrastructure and most importantly we have the energy infrastructure”.
Recalling the country’s age-old load-shedding issue when his party came to power in 2013, Malik said the government then succeeded in getting rid of it, which contributed to economic growth. “We were able to provide energy to our industrial and commercial sectors. New businesses were created; new jobs were created. And now we’re trying to do exactly the same,” he stated.
The minister expressed hope that with a little bit of financing and the existing infrastructure, the country would be able to host startups. “We’re hoping with a little bit of additional financing, we’d be able to do the proliferation of new businesses and consequently job creation and economic growth,” he added.