Circular debt worries

24 Sep 2020

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PAKISTAN’S circular debt challenge is getting bigger by the day and the government is struggling hard to get a firm handle on the problem, which is threatening the very stability of the power sector. Notwithstanding the claims by ministers and other government officials of having controlled the pace of increase in the power-sector debt stock, the latter has almost doubled over the last couple of years to reach Rs2.1tr. The government has time and again declared that the pace of monthly growth in the quasi-fiscal debt size had been arrested and brought down to Rs10bn-12bn from Rs38bn during the last PML-N government. But in effect, the debt rose by almost Rs45bn a month during the previous financial year. A recent study by a private power company has predicted the size of the circular debt — or the amount of cash shortfall within the Central Power Purchasing Agency system that the agency is unable to pay to its power suppliers — to double in the next five years if it is not brought under control. That would be quite a scary situation given that the country is still being run on borrowed money and its economy is groping in the dark.

The growing power-sector debt is generally considered one of the biggest threats to the stability of the sector, as well as the government’s budget. There are numerous reasons for the appearance of circular debt in the mid-2000s and its increase, ranging from expensive power purchasing agreements with private producers and exorbitantly high system losses to unrecovered bills, corruption and mismanagement of state-owned distribution companies. However, it is surprising to see a federal government minister simplify the problem by putting the entire blame on the previous rulers. Indeed, the present government has inherited the issue from its predecessor. Yet the people have a right to ask as to what it has done in the last two years to manage it and why it has been pursuing the same power policies followed by the previous administration. After all, it is the people that have to bear the brunt of wrong power policies and gross mismanagement of the sector in the form of electricity rates that are higher than the regional average. With the PTI into its third year in power, the public expects it to come up with a tangible short- to long-term power-sector reform programme to fix matters instead of constantly looking back.

Published in Dawn, September 24th, 2020