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IMF rejects Pakistan’s debt management plan

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The International Monetary Fund (IMF) has rejected Pakistan’s revised Circular Debt Management Plan (CDMP). The global financial institution has called on the Pakistan government to increase the electricity tariff in the range of PKR 11-12.50 per unit to restrict the additional subsidy at PKR 335 billion for the current fiscal year.

The IMF and Pakistan have held talks to complete the pending ninth review under the $7 billion Extended Fund Facility (EFF).

Circular debt occurs when one entity facing problems with its cash inflows does not make payments to its suppliers and creditors.

The IMF has called the revised CDMP “unrealistic” which is made based on certain wrong assumptions.

The Pakistan government will have to make changes in its policy prescription to restrict the losses of the power sector.

The revised CDMP has called for an increase in the circular debt to the tune of 952 billion for the current fiscal year against an earlier projection of 1,526 billion. The Pakistan government shared its revised CDMP with the IMF on Wednesday.

The Pakistan government‘s revised CDMP demonstrated that the government needed an additional subsidy of 675 billion despite increasing the power tariff in the range of PKR 7 per unit through quarterly tariff adjustment in the first two quarters of 2023 and PKR 1.64 for the third quarter from June to August.

“The IMF has opposed the certain basis of the revised CDMP and asks the government to raise the tariff in the range of 11 to 12.50 per unit so that the requirement of additional subsidy could be reduced to half from its existing levels of 675 billion for the current fiscal year”.

Furthermore, the IMF has raised questions on how the Pakistan government calculated its additional subsidy requirement figure of 675 billion for the current fiscal year. The revised CDMP envisages restricting losses of DISCOs to 16.27% on average during the current fiscal year.

According to the report, the Pakistan government has envisaged the target to recover Fuel Price Adjustment (FPA) charges deferred last summer to fetch 20 billion against estimates of 65 billion made last summer, as per the news report.

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