September 26, 2023
Economy Pakistan

IMF Rejects Pakistan’s Revised Circular Debt Plan

IMF Rejects Pakistan's Revised Circular Debt Plan

The International Monetary Fund (IMF) has rejected Pakistan’s revised Circular Debt Management Plan (CDMP) for the current fiscal year. The global financial institution called for an increase in electricity tariffs, proposing a range of PKR 11-12.50 per unit to restrict the additional subsidy at PKR 335 billion. The IMF deemed the revised CDMP “unrealistic” and based on wrong assumptions.

The Pakistan government must make changes in its policy prescriptions to limit the losses in the power sector. The revised CDMP called for an increase in circular debt to PKR 952 billion for the current fiscal year, against an earlier projection of PKR 1,526 billion.

The IMF raised questions about the calculation of the additional subsidy requirement of PKR 675 billion for the current fiscal year. The revised CDMP aimed to restrict losses of distribution companies to 16.27% on average during the fiscal year.

The IMF also criticized the government’s estimated target to recover Fuel Price Adjustment (FPA) charges deferred last summer, which was set at PKR 20 billion, compared to the estimated PKR 65 billion made last summer.

Talks between the IMF and Pakistan to complete the pending ninth review under the $7 billion Extended Fund Facility (EFF) continue. The IMF’s rejection of the revised CDMP highlights the need for the Pakistan government to reconsider its policy prescriptions and revise its debt management strategy.

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