Not good for our word
The government of Pakistan has defaulted on a sovereign guarantee for the first time in its history. The consequences are going to be dire. For starters, this is definitely going to take a toll on the government’s credit ratings. It is going to become expensive to borrow money now.
The writing on the wall was around since much before the proverbial hit the fan. Our circular debt had been ratcheting higher and higher. There was bound to be a time when, far from not being able to pay up on time or completely, they are going to default.
As an aside: there is actually a school of thought, serious mavericks, who have been crying themselves hoarse trying to convince the government to default by design on our debt programmes with the IMF and other international financial institutions. Not the right thing to do when it comes to commercial enterprises like the IPPs, of course, but in the marketplace for ideas, everything should be heard.
What to do now? First of all, the government should sell the family silver if it must but it should throw money at this problem. On the larger picture of the circular debt issue, simply throwing money at it would be throwing good money after bad but here, where we are sullying our good name, there should be some last-resort measures.
What should the government do in the longer run? Even though the odds are stacked against it as far as raising rates are concerned, with both the media and opposition baying for blood, raising rates to a sustainable level and getting rid of the subsidies is something that cannot be done without. Were the government to prioritise commercial and industrial electricity and hike up the rates otherwise, it won’t feel as much of a pinch politically as compared to, say, a possible League government. This isn’t its vote bank, especially if the really lower tariff slabs are left untouched.
Moving on, before simply shifting the fiscal space generated from above, first spend it on maintenance and restructuring to cut down transmission losses. Third, continue to build non-controversial, or at least manageably controversial, hydel power projects.