Pakistan Tells IMF How It Plans to Cut Circular Debt and Adjust Power Tariff to Support Industry

The caretaker government on Monday virtually met with the International Monetary Fund (IMF) to discuss tariff rationalization and circular debt reduction measures. Federal Minister for Power and Petroleum Muhammad Ali aims to obtain IMF and cabinet approval for both plans before the end of the caretaker government’s regime, reported Business Recorder. The IMF has requested more information on the subject matter so that things are clearer before the next round of talks. World Bank has already been brought up to speed. The proposed tariff rationalization will cut the industry’s tariff from 14 cents per unit to 8.5-11.75 cents per unit via a subsidy-neutral approach. Protected consumer groups will be burdened with fixed costs ranging from Rs. 50 to Rs. 450 per month. Meanwhile, the energy sector’s circular debt stock of Rs. 1.27 trillion will be settled with funds from the Government of Pakistan. In terms of potential complications arising from the proposed tariff rationalization plan, for instance, a drop in revenue of distribution companies, it is expected that the income gap will be covered through proceeds from anti-theft collection drives. This comes after the executive committee of the Special Investment Facilitation Council (SIFC) decided in January 2024 to develop a concise technical paper in consultation with the Finance Division to reduce circular debt, and for the Power Division to consult with the Finance Division to assess a new tariff rationalization plan to curb the negative impact of steep power tariffs on the local industry. However, the decision was then reversed to wait for the budget for final approval.