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Debt Surcharge Negotiations with IMF at an Impasse

An agreement on a new debt surcharge has yet to be reached between Pakistan and the International Monetary Fund (IMF)

As a result of the surcharge, electricity consumers would be required to pay Rs3.82 per unit of electricity in order to recover Rs 284 billion in losses.

The IMF prefers that the surcharge remain in place until the government resolves the Rs 800 billion circular debt parked in a company, which the government plans to do for eight months (March to October 2023). The failure of the finance ministry and IMF to reach a consensus despite their meeting on Wednesday revealed a lack of coordination between important government agencies.

Since more than 90% of the conditions have been satisfied, the finance minister asked the IMF to make the staff-level agreement public. Despite significant increases in power prices, the IMF views the surcharge as “critical” for resolving the circular debt in the power sector, which will rise to Rs2.4 trillion.

The debt surcharge issue has delayed the finalization of the staff-level agreement, as the IMF wishes to make the surcharge permanent. The government has already agreed to the surcharge for the March-October period, but the IMF insists that it should continue indefinitely to address a major contributor to the circular debt flow. Prior to imposing the Rs3.82 per unit surcharge, the government has agreed to consult with the Power Division and the Law Division.

The PHL, a fully-owned government organization, is in charge of finding funding for the power sector by borrowing from commercial banks and using the finance ministry to guarantee the debt. The money is used to settle the debt owed by the power industry, and the government’s policy guarantees payment to the IPPs.

There is already a surcharge of 43 paisa per unit in the consumer bill to recover the mark-up portion of the loans, amounting to Rs246 billion, but this is insufficient to recover the mark-up charges on the entire loan amount.

On February 14, the finance ministry notified the federal cabinet that the IMF had established prior actions to recover the postponed increases in fuel prices for the months of June and July 2022, beginning March 1, 2023, to impose a surcharge of Rs3.82 per unit beginning March 1, 2023, and to withdraw recently announced subsidies to Zero-Rated Industry and agricultural subsidy packages beginning March.

The cabinet members demanded that the bloated state-owned businesses, which drain the government of billions each month, be reformed. Around Rs224 billion in interest payments from the electricity generation portion were made as of December 31, 2022, and the IMF now wants to stop this practice to stop further circular debt flows. Due to a projected 3% increase in interest rates by the SBP, the government’s financial problems would only get worse, including in the power sector.

Written by Aly Bukshi

The editorial staff at IPIN is a team of news publishing experts led by Aly Bakshi. We publish interesting and informative news/articles all over the world. Our aim is to provide readers with the latest and most up-to-date information possible.