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Pakistan’s amended Circular Debt Management Plan was rejected by the International Monetary Fund (IMF) review team (CDMP). The Pakistani government has been urged to raise the energy cost to PKR 11–12.50 per unit in order to cap the additional subsidy at PKR 335 billion for the current fiscal year, according to The News International.
Both parties will continue to hold discussions to conclude the ongoing ninth review under the USD 7 billion Extended Fund Facility as the International Monetary Fund review mission headed by Nathen Porter arrived in Islamabad on Monday (EFF).
According to The News International, circular debt happens when a single firm has issues with its financial inputs and fails to pay its suppliers and creditors.
The updated CDMP, which is based on a few false assumptions, has been dubbed “unrealistic” by the IMF. According to a report from The News International, the Pakistani government would need to alter its recommended course of action to limit losses in the power sector.
Various extra taxing measures would be finalized through the upcoming mini-budget once the IMF and Pakistan’s Ministry of Defence have worked out a fiscal shortfall.
The circular debt is expected to rise by 952 billion dollars for the current fiscal year, as opposed to the earlier prediction of 1,526 billion, according to the amended CDMP. On Wednesday, the Pakistani government presented its updated CDMP to IMF officials in this location.
Despite increasing the power tariff by up to PKR 7 per unit through quarterly tariff adjustment in the first two quarters of 2023 and up to PKR 1.64 for the third quarter from June to August, the Pakistani government’s revised CDMP showed that the government still needed an additional subsidy of 675 billion.
“The IMF has objected to the specific basis of the revised CDMP and asks the government to raise the tariff in the range of 11 to 12.50 per unit, so that the requirement of additional subsidy could be reduced to half from its existing levels of 675 billion for the current fiscal year,” top official sources were quoted as saying by The News International.
In addition, the IMF has questioned the methodology used by the Pakistani government to determine its additional subsidy requirement of 675 billion for the current fiscal year, according to a report from The News International. The amended CDMP calls for limiting DISCO losses to an average of 16.27% for the current fiscal year.
The aim set by the Pakistani government to recover Fuel Price Adjustment (FPA) costs that were postponed last summer is 20 billion dollars, as opposed to the news report’s estimate of 65 billion dollars.
The GST and other taxes on a collection basis will assist recover PKR 18 billion in the current fiscal year, according to The News International, while the markup savings due to IPPs stock payment will bring PKR 11 billion. Including the amount stored in the Power Holding Limited, the circular debt is projected to reach around PKR 2,113 billion till the end of Fiscal Year 2023. (PHL).
