Be Ready For Electricity Price Hike as a ‘New Normal’ When IMF Press for Belt-Tightening

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Be Ready For Electricity Price Hike as a ‘New Normal’ When IMF Press for Belt-Tightening

People may have to experience further increase in the electricity tariff as the elimination of circular debt and phasing out power subsidies is among the top demands of the International Monetary Fund (IMF) on whom the PTI government is banking on for a bailout package.

 

According to The Express Tribune, the energy ministry has developed a three-year plan for targeting the tariff differential subsidies and bringing the tariff to a cost-recovery level, along with cost-cutting and efficiency measures to reach full cost recovery in the electricity sector.

Both sides are currently holding another round of talks in Islamabad which will continue till May 10. And The Express Tribune in a report says both are still unable to iron out the differences on issues like over the monetary policy, the phasing out of electricity subsidies, the upfront taxation measures and the federal government’s expenditures.

As the two sides are holding meetings, the Pakistani delegation led by Adviser to the Prime Minister on Finance Dr Abdul Hafeez Sheikh briefed the IMF team on the progress made by the government.

The IMF team is in the country from April 29 to May 10 with an aim to finalise the three-year Extended Fund Facility programme, valuing nearly $6.5 billion.

At a time when a total of Rs325 billion is expected to be added to circular debt, the IMF wants Islamabad to eliminate the flow of debt, bringing it to zero by the end of the fiscal year 2019-20.

But the government has presented a plan to phase out circular debt and completely eliminating it Against the IMF demand, the government has presented a two-year plan to completely eliminate the circular debt, starting by June 30, 2021.

Meanwhile, the Chinese puzzle for the government is the IMF demand that if Islamabad could not fully eliminate the circular debt in the first year then its fiscal implications should be reflected in the budget.

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However, this will squeeze the government’s spending space in other areas, as the IMF will not like to relax the overall ceiling of the budget deficit, sources say.

But the energy ministry thinks any increase in the electricity tariff will be counterproductive and is also going to hamper the campaign against electricity theft and low recovery of bills, as people would be discouraged to cooperate with the authorities.

It has assured the IMF that it would facilitate quarterly adjustments in electricity prices under a three-year plan but it was not in favour of full cost recovery in one go – meaning that the people should be ready for increase in power tariff.

That’s why the gas and electricity tariffs have already been increased to move towards full cost recovery and curtail the build-up of circular debt, the sources said.

The tariff for the consumption of up to 200 units per month is planned to be retained. The subsidies for consumption exceeding 200 units will be phased out from the second year of the programme.

The government has also informed the IMF that it would recover the cost of servicing for the syndicated term credit finance facility from electricity consumers.

Meanwhile, the IMF also wants to an increase in interest rate despite the fact that the government had earlier given the impression that the demand had been withdrawn. The rate currently stands at 10.75 per cent.

According to sources, the government is of view that the previous hikes in the discount rates and devaluation have adversely affected economic growth and caused inflation.

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