Only those with their heads buried in the sand would’ve been seriously surprised by banks refusing lending for power projects till the circular debt is resolved. And there shouldn’t be room for ostriches in policy-making circles. Yet surprise is in plenty in Islamabad, and dejection that the no-credit posture extends to all things energy, including the coal goldmine sitting dormant at Thar. So, as things stand, not only are there not nearly enough monies to resolve the debt matter, there will be none flowing in either. And since debt banks on money-flow, it’s not going to be resolved for some time to come.
Normally, it’d surprise us that banks have finally begun taking risk management seriously, seeing how their generally risk-averse nature has facilitated excessive government borrowing, crowding out private sector investment in the process. But it turns out that power sector exposure is at the centre of their risk fiasco, and there is simply no way any financial organisation anywhere in the world will engage with the same sector till all outstanding financial matters are cleared.
So the responsibility falls right back on the government. They can claim inheriting energy problems from the previous administration, a partly true claim, but so much more false than true that bringing it up can at best be face-saving desperation. But they cannot justify kicking the circular debt can down the road all their years in office. And as regards Thar, the president’s recent public lament regarding necessary investment notwithstanding, offers from China and Japan went begging primarily because Islamabad couldn’t get its act together in time.
In a way it’s good that banks have named the debt as the principal obstacle to future financing. Now the government will need to move with greater agility and stronger purpose than before. Whether or not it is up to the task will become apparent soon enough.
