IMF rejects Pakistan's 'unrealistic' debt management plan

The IMF has asked the government to raise the electricity tariffs from PKR 11 to PKR 12.50 per unit in order to restrict the additional subsidy at PKR 335 billion for the current fiscal year, according to Pakistani media.  The IMF review mission, led by Nathen Porter, arrived in Islamabad and both sides are continuing talks to complete the pending ninth review under the USD 7 billion Extended Fund Facility (EFF).

The International Monetary Fund (IMF) has reportedly rejected the revised Circular Debt Management Plan (CDMP) proposed by the government of Pakistan. 

The IMF has asked the government to raise the electricity tariffs from PKR 11 to PKR 12.50 per unit in order to restrict the additional subsidy at PKR 335 billion for the current fiscal year, according to Pakistani media. 

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The IMF review mission, led by Nathen Porter, arrived in Islamabad and both sides are continuing talks to complete the pending ninth review under the USD 7 billion Extended Fund Facility (EFF).

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Circular debt is a situation in which one entity facing cash flow problems does not make payments to its suppliers and creditors. The IMF has described the revised CDMP as "unrealistic" and based on incorrect assumptions. The Pakistan government will have to make changes in its policy prescription to restrict the losses of the power sector.

The IMF and Pakistan's Ministry of Defence will work out a gap on the fiscal front, after which various additional taxation measures will be finalized through the upcoming mini-budget. The revised CDMP calls for an increase in circular debt to PKR 952 billion for the current fiscal year, compared to an earlier projection of PKR 1,526 billion. The government of Pakistan shared its revised CDMP with the IMF on Wednesday.

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The revised CDMP demonstrated that the government needed an additional subsidy of PKR 675 billion, despite increasing the power tariff by PKR 7 per unit through quarterly tariff adjustment in the first two quarters of 2023 and PKR 1.64 for the third quarter from June to August. The IMF has opposed the basis of the revised CDMP and has asked the government to raise the tariff so that the requirement for additional subsidy could be reduced by half.

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Furthermore, the IMF has raised questions on how the government calculated its additional subsidy requirement figure of PKR 675 billion for the current fiscal year. The revised CDMP envisages restricting losses of DISCOs to 16.27% on average during the current fiscal year.

The government has envisaged the target to recover Fuel Price Adjustment (FPA) charges deferred last summer, which is expected to fetch PKR 20 billion, compared to the estimates of PKR 65 billion made last summer. The markup saving due to IPPs stock payment is expected to bring in PKR 11 billion, and the GST and other taxes on a collection basis are expected to recover PKR 18 billion in the current fiscal year. The circular debt is estimated to be around PKR 2,113 billion by the end of the fiscal year 2023, including the amount parked in the Power Holding Limited (PHL).

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