Government indecisive over revised Circular Debt Plan

July 19, 2021

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After refusing IMF/World bank to carry on the dictated power tariff increase and Circular Debt Reduction, Government is now indecisive on its revised Circular Debt Management plan as Inter Ministries disagreement has led to delaying the finalization.

The government in its budget has allocated Rs 330 billion for Power Sector Subsidy in fiscal 2021-22 compared to Rs 501 billion in demand, which means that Subsidy is expected to be Rs 171 billion less.

According to the previous Circular Debt Management Plan (CDMP), the government promised the World Bank and IMF to increase the base rate by Rs 3.34 per unit to curtail Circular Debt. Out of this planned increase, Rs 1.94 per unit was announced in February -2021 while Rs 1.39 per unit is still pending.

The remaining increase has not passed on to consumers after negotiations with the International Monetary Fund did not lead to a convincing sixth review due to disagreements between several agreed and proposed policies.

The federal government has yet to finalize its revised Circular Debt Management Plan due to the difference between the Energy Ministry and the Finance Ministry regarding the amount of Power Subsidy and the proposed increase in electricity tariffs for the 2021-22 fiscal year.

The country’s Circular debt stood around Rs 2,327 billion as of June 30, 2021.

The main contribution to working debt came from unpaid subsidies (Rs. 130 billion), followed by Rs. 72 billion in the form of off-budget subsidies, Rs. 37 billion of interest payments on expired IPPs, Rs. 48 billion from Power Holding Limited (PHL), Rs. 48 billion on production costs, while Rs 83 billion unpaid amount from K-Electric, Rs 54 billion discos inefficiencies, and Rs 74 billion unrecovered amount of discos.