The International Monetary Fund (IMF) has rejected Pakistan’s proposals to address the energy sector’s circular debt of Rs1.3 trillion and reduce electricity prices for industries. Nathan Porter, IMF’s Mission Chief to Pakistan, stated that the proposed industrial tariff reduction plan would overburden residential consumers and carries fiscal risks. The interim government’s plan aimed to reduce the cross-subsidy burden for the industrial sector by 91%, suggesting an increase in the subsidy burden for residential consumers using over 400 units. However, the IMF expressed concerns about the plan’s impact on vulnerable households.
Also Read: Ogra Proposes Gas Price Hike to Fulfill IMF Condition
Furthermore, the IMF disapproved of the government’s proposal to reduce the circular debt by 22% or Rs1.27 trillion using Rs902 billion supplementary grants, citing fiscal risks and continued reliance on supplementary grants. Porter emphasized the need for broad-based reforms in the energy sector, including reducing the high cost of energy, improving compliance, addressing theft and line losses, and focusing on governance and management of distribution companies.
The circular debt in Pakistan’s energy sector stood at Rs5.72 trillion as of November 2023. The government’s proposed reduction plan involved utilizing the budget and dividends from gas exploration and production companies. The rejection by the IMF poses challenges for the interim government, which was hoping to address a significant portion of the circular debt before leaving office.
