Pakistan’s circular debt crisis continues to persist, despite efforts to secure foreign loans and increase electricity prices. The circular debt, which refers to the accumulation of unpaid bills and subsidies in the energy sector, is projected to increase by another Rs 545 billion by March next year.
This alarming increase is occurring despite significant price hikes in electricity rates, with some tariffs reaching as high as Rs51 per unit, impacting the finances of low and middle-income groups.
The government has been actively seeking financial assistance from international organizations like the World Bank and the International Monetary Fund (IMF) to support power sector reforms. Pakistan is eyeing a $600 million loan from the World Bank for these reforms, and the IMF has a $3 billion standby arrangement in place.
However, these loans have primarily focused on increasing electricity prices, following the IMF’s policy of “fiscalization” of power sector inefficiencies. This strategy has had a significant impact on consumers who are now burdened with higher bills.
Unfortunately, despite the price increases, there has been little improvement in the financial health of the power sector. Discussions around actual reforms within the sector have been limited, with most conversations centered on the need for subsidies and tariff hikes. Real structural reforms, aimed at addressing underlying issues, have yet to materialize.
The projections for circular debt have deviated significantly from the indicative targets set by the IMF. For example, the IMF had set a target of reducing the debt flow by Rs155 billion, but the Power Division now estimates an increase of Rs292 billion in the first quarter alone. This disparity between projections and targets is a cause for concern.
Furthermore, the performance of power distribution companies remains a challenge. High loss targets and low recovery rates continue to plague the sector, adding to the circular debt crisis. The government’s commitment to reducing losses and improving recoveries has not yielded the desired results.
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