Govt unable to quote exact amount of circular debt to IMF

The government functionaries have shown their inability to provide the IMF team the exact amount involved in the circular debt — a shocking development. The Fund officials had asked how the government was going to resolve the issue of circular debt, minutes of their meetings show.

They had also asked the government to show in the budget document how the government was going to inject the cash amount into the private sector IPPs in a bid to erase the circular debt. This cash injection provision should come from the budget ensuring transparency.

The Fund also stressed the government to come up with a mechanism that ensures no further emergence of the menace of circular debt. It also asked the government to reconsider the gas allocation priorities and come up with a rationalised price determination policy.

According to one of the officials of the Finance Ministry, who attended the meeting with the IMF officials here on Wednesday, the government officials got embarrassed when they failed to reveal the exact amount involved in the circular debt.

From the government side, officials from the ministries of petroleum and natural resources and water and power headed by the Finance Division took part in the talks. The representatives of the World Bank and Asian Development Bank were also present in the meeting.

The mandarins of the Finance Division assured the IMF that the exact amount of circular debt would be firmed up in the next two or three days. However, for the time being, Rs503 billion could be considered as the official figure of the circular debt. The exact amount of the circular debt is currently being worked out by Wapda in consultation with all the stakeholders.

The IMF delegation visited Lahore on Thursday and from there it will go to Karachi to interact with the business communities of the two cities.

By that time, the exact size of the circular debt will be finalised. However, in the meeting with the IMF held on Wednesday, the IMF was told that the private sector liability was to be cleared with cash injection and the cut-off date was June 30, 2013. For the public sector, the government will issue term finance certificates and market bonds.

Mentioning the issue of the new power tariff regime which was marketed by the government before the IMF mission, the official said that the government had decided to rationalise the tariff structure under which the cost of electricity would be recovered in such a way that maximum burden was shared by industrial, commercial and bulk tariff hikes. However, the domestic tariff will be rationalised gradually. The IMF was also told that the tariff slab disparity would be removed to encourage an efficient use of electricity.

In the meeting, the Asian Development Bank (ADB) asked the government to ensure an upfront mechanism for tariff determination by the NEPRA to avoid periodical tariff adjustments and that NEPRA should be bound to announce tariff by a fixed time-frame. “NEPRA needs to be restructured on professional grounds and qualified professionals be hired from the market,” the official said while quoting the ADB’s demand.