ISLAMABAD: On the opening day of make-or-break talks with the International Monetary Fund (IMF), the government on Tuesday increased liquefied petroleum gas (LPG) price by 30 per cent and finalised a minimum of Rs6 per unit average increase in electricity rates between now and August.
This was on top of an earlier hike in petroleum rates by up to 16pc, a rise of one percentage point in the central bank’s policy rate, and the removal of an exchange rate cap that led to over 14pc depreciation.
Still, the visiting IMF mission, led by Mission Chief to Pakistan Nathan Porter, sounded adamant on upfront, calibrated and strong measures to bridge the daunting fiscal gap — between Rs2 trillion to Rs2.5tr.
“You don’t have any other option” was the critical message, as members of the mission engaged with the finance and power ministries led by Ishaq Dar and Khurram Dastgir Khan, respectively, sources close to the meetings told Dawn.
Policies, steps required to complete 9th review discussed; govt raises LPG rate by 30pc, finalises hike in power rates
Technical discussions on expenditure cuts and revenue measures would follow over the next couple of days. The two sides would remain focused on technical-level deliberations in the first round, slated to run until Friday, then move on to the crucial policy-level negotiations over the next weekend until Feb 9.
The finance and power ministries have jointly finalised the “revised circular debt management plan” based on a circular debt of Rs2.253tr as of June 30, 2022. Payables to power producers had already gone beyond Rs1.25tr.
Under the plan, the government would address about Rs952bn worth of debt management during the current fiscal year, including Rs675bn worth of additional subsidies. About Rs200bn additional funds would be recovered from consumers through the increase in base tariff on top of outstanding quarterly adjustments from the last year.
This means the government would raise the power tariff by Rs3.21 per unit in the first quarter (February-March), followed by another 70-paisa increase in the March-May period and then a Rs1.64 hike in the June-August quarter. This would yield about Rs80bn until August.
Another Rs90bn would be charged through the recovery of deferred fuel cost adjustments and markup on existing loans parked in the Power Holding Company.
The Ministry of Finance said the visiting team led by Mr Porter and resident representative Esther Perez Ruiz had a meeting with the government team led by Mr Dar.
The government’s side also comprised Minister of State for Finance and Revenue Dr Aisha Ghous Pasha; premier’s special assistants on finance and revenue Tariq Bajwa and Tariq Mehmood Pasha, respectively; State Bank of Pakistan Governor Jameel Ahmad; Secretary Finance Hamed Yaqud; and Federal Board of Revenue Chairman Asim Ahmed, among others.
“The meeting discussed and reviewed the economic and fiscal policies and reforms agenda to accomplish the 9th review under the Extended Fund Facility,” the ministry said in a statement, adding that Mr Dar welcomed the delegation and shared long-standing friendly relations with the IMF.
He briefed the mission on fiscal and economic reforms and measures being taken by the government in different sectors, including bridging the fiscal gap, exchange-rate stability, and in the energy sector for the betterment of the economy.
The minister said reforms were being introduced in the power sector and a high-level committee had been formed for devising modalities to offset the menace of circular debt in the gas sector.
He also extended gratitude to the IMF managing director for the continuation of talks and shared that as the finance minister he had successfully completed the IMF programme in the past and that the government was committed to completing the present one as well.
Mr Dar “extended all his support to the [IMF] mission and committed to working together for reaching an agreement to complete the 9th review” under the Extended Fund Facility.
Mr Porter, the IMF mission chief, expressed his confidence that the government would meet the Fund’s requirements to complete the ninth review and hoped that Pakistan would continue towards its progress on the reforms in various sectors and complete the loan programme within time.
He added that the IMF and Pakistan would be working together on fiscal reforms.
Published in Dawn, February 1st, 2023
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