IMF Rejects Pakistan’s Circular Debt Management Plan

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The International Monetary Fund (IMF) has rejected Pakistan’s rationalization and circular debt reduction measures a day after the Energy Ministry (Petroleum Division) reassured of productive deliberations with the lender.

IMF’s Mission Chief to Pakistan Nathan Porter said in response to a query late Monday night, “In our view, the proposed plan does not address the underlying problems. In particular, the CD neutrality of the tariff rationalization plan is doubtful and it would place a significant additional burden on vulnerable households”.

He said restoring the viability of the energy sector is critical to Pakistan’s economic recovery and fiscal sustainability. For this, the government needs to focus on broad-based reforms, including reducing the high cost of energy, improving compliance and reducing theft and line losses, ending captive power, and fixing the governance and management of the DISCOS, as well as keeping up with regular tariff adjustments.

“The CD ‘reduction plan’ entails fiscal risks given the chain of transactions involved and would also continue the use of supplementary grants which have placed a considerable burden on the fiscal accounts in recent years,” he stated.

He also said, “We are open to working with the government and other international partners to advance a sustainable reform plan addressing the issues mentioned above which, if successfully implemented, would allow tariffs for all classes of consumers to fall”.

On Sunday, the Ministry of Energy (Petroleum Division) on Sunday dispelled reports created by some media reports regarding delays in the circular debt reduction and tariff rationalization plans due to no consent given by the IMF. The lender’s mission chief’s statement contradicts the Petroleum Division, prompting further doubt on whether Pakistan would be able to get all agenda items in order this time.

Last week the caretaker government virtually met with IMF to discuss tariff rationalization and circular debt reduction measures. Now turned down, the proposed tariff rationalization cut the industry’s tariff from 14 cents per unit to 8.5-11.75 cents per unit via a subsidy-neutral approach. Meanwhile, the energy sector’s circular debt stock of Rs. 1.27 trillion was supposed be settled with funds from the Government of Pakistan.

  • Very good IMF, it was a totally unworkable plan. These so called Pakistani experts should be sent home asap before they mess up everything

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