‘Fuel crisis weighing on credit worthiness’

Published January 27, 2015
— AFP/file
— AFP/file

ISLAMABAD: Pakistan’s ongoing fuel shortage that has led to worsening power blackouts is weighing on its credit worthiness and hindering its ability to meet key reform targets laid out by the IMF, ratings agency Moody’s warned on Monday.

The country is currently in the grip of one of its worst power crisis in years due to a shortfall in imported oil, with the situation exacerbated on Sunday by an attack on a key powerline in restive Baluchistan province.

Moody’s said that increasing energy imports without addressing structural issues that create so-called circular debt “will further strain Pakistan’s budget and balance of payments, a credit negative”.

“Fuel shortages also reflect the strained finances of state-owned distribution companies and the fuel importer, Pakistan State Oil Corporation, and are a setback to the sector’s progress on reforms made so far under Pakistan’s financial support programme with the International Monetary Fund.”

The IMF granted a $6.6-billion loan to Pakistan in September 2013 on the condition that it will carry out extensive economic reforms, particularly in the energy and taxation sectors.

Moody’s, which in July 2014 upgraded Pakistan’s rating outlook from “negative” to “stable” in a boon for the shaky South Asian economy, said that structural reforms had been a “key driver” in its decision last year.

“Circular debt” — brought on by the dual effect of the government setting low electricity prices and customers failing to pay — is at the heart of the crisis.

State utilities lose money, and cannot pay private power generating companies, which in turn cannot pay the oil and gas suppliers, who cut off the supply.

The fuel crisis began last week when Pakistan State Oil was forced to slash imports because banks refused to extend any more credit to the government-owned company, which supplies 80 per cent of the country’s oil.

The shortfall led to long queues of angry motorists at petrol stations, though these have since dissipated as fuel supplies have reached the pumps.

But Moody’s warned that the government of Prime Minister Nawaz Sharif, which made solving the energy crisis a key campaign pledge, had so far failed to offer policy solutions and increasing oil supplies would only add to the fiscal burden.

“The government’s targeted fiscal deficit of 4.5pc of GDP in fiscal 2015 from 4.7pc in fiscal 2014 is already impeded by delays in implementing electricity tariff adjustments and legal challenges related to tax collections,” it said.

Increasing fuel imports, which currently comprise 35pc of total imports would further weigh on Pakistan’s import bill, it added.

Published in Dawn January 27th, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play

Opinion

Editorial

Digital growth
Updated 25 Apr, 2024

Digital growth

Democratising digital development will catalyse a rapid, if not immediate, improvement in human development indicators for the underserved segments of the Pakistani citizenry.
Nikah rights
25 Apr, 2024

Nikah rights

THE Supreme Court recently delivered a judgement championing the rights of women within a marriage. The ruling...
Campus crackdowns
25 Apr, 2024

Campus crackdowns

WHILE most Western governments have either been gladly facilitating Israel’s genocidal war in Gaza, or meekly...
Ties with Tehran
Updated 24 Apr, 2024

Ties with Tehran

Tomorrow, if ties between Washington and Beijing nosedive, and the US asks Pakistan to reconsider CPEC, will we comply?
Working together
24 Apr, 2024

Working together

PAKISTAN’S democracy seems adrift, and no one understands this better than our politicians. The system has gone...
Farmers’ anxiety
24 Apr, 2024

Farmers’ anxiety

WHEAT prices in Punjab have plummeted far below the minimum support price owing to a bumper harvest, reckless...