ISLAMABAD: The International Monetary Fund (IMF) has asked Pakistan to swallow another bitter pill by imposing a power surcharge of around Rs 3 per unit on consumers to recover huge markups from the power holding company.
On the issue of the refinancing of the $700 million loan from the China Development Bank (CDB), a government official said he is optimistic that all Chinese matured loans will be refinanced soon.
However, two more commercial loans including $500 million and $800 million are expected to be refinanced, according to sources. So in total, Pakistan is looking to refinance Chinese debt of up to $2 billion by the end of February or the first week of March 2023. However, the cash-bleed power sector has yet to make a dent. This has become one of the obstacles in the way of signing a staff-level agreement with the IMF.
The government will have to make up its mind about slapping another surcharge on the power sector pending a Staff Level Agreement (SLA).
Pakistani officials and the global lender held virtual talks on Tuesday to sign the SLA and both sides discussed the possibility of slapping on another surcharge, but the exact amount has yet to be determined. The IMF wants an immediate power surcharge of over Rs 3 per unit as the sector continues to face extraordinary losses.
The fund has informed the Pakistani side that the country’s development or its cash-bleeding power sector cannot go hand in hand with the status quo, hence the urgent need to make long overdue reforms in the sector without wasting time.
During the last financial year 2021-22, the government paid losses totaling Rs 1600 billion, which was more than the defense expenditure shown in the budget documents. This monstrosity of revolving debt and accumulated deficit in the power sector will sink Pakistan’s economy.
When contacted, a negotiator from the Pakistani side said “they are still discussing the surcharge issue with the IMF”. There is still confusion within the government to resolve this long-standing issue, which has so far been a major obstacle to a staff-level agreement, as some quarters argue that better revenue would be Efforts should be made. Or cutting costs instead of increasing tariffs by imposing another power surcharge.
However, there is another point of view within the government that the IMF needs to be revived immediately and hence the electricity surcharge should be imposed without wasting time. Another issue troubling the economic policy makers is that the IMF does not trust the finance ministry very much, so they wanted to get assurances from the PM’s office on every issue that during the remaining course of the IMF programme. No deviation will be made.
Three issues were now left, including securing approval from all external financing channels, slapping additional power surcharges and raising policy rates under the IMF’s strict prescription to fix Pakistan’s ailing economy. and includes issuing a $1 billion tranche under the $6.5 billion expansion fund. Convenience.
