After staying on the sidelines for a brief while, the circular debt is back in the news. The finance ministry, on the directives of the Prime Minister, has taken notice of the peculiar situation as the circular debt touched fresh highs nearing Rs300 billion, according to recent news reports.
Although, the governments acknowledgement of the gravity of the issue in hand is apparent, but the way adopted to deal with it has proved to be futile, and the recent efforts to tackle it with the peanut injection of Rs30 billion will ultimately meet the same fate that previous such attempts met.
The idea this time is to support the Pakistan State Oil with 80 percent of the allotted amount to avert the crisis-like situation that it currently faces. But the impact will not go beyond a couple of weeks as the amount parked in the circular debt account is too massive to be wiped off with such small injections.
This is not the first time the government has tried to deal with it by injecting money, as two TFCs with a combined worth of Rs165 billion were issued last year in a bid to resolve the crisis. But obviously it didn serve the purpose as the issues at the core were left untouched.
There have been a few developments of late but they are mostly of cosmetic nature such as the revamping the boards of the power companies. It will serve little purpose if the real problem of inefficiency in the power distribution & transmission system is not addressed.
It is also a pity that the Minister for Petroleum was heard saying that tariff rationalisation is the only way out of the circular debt menace. While there is no denying that tariff rationalisation is the key element in wiping out the circular debt, this alone won serve the purpose as the need to rationalise tariff resulting from the inefficacy in the system will keep arising if the loopholes within the power system are not plugged in.
For that to happen, there needs to be strong political will as a large portion of power losses relate to electricity theft, which can be best dealt if there is political will to tackle it firmly.
Moreover, it is the same lack of political will that contributes to the circular debt through non-payment of electricity bills as the government is the biggest defaulter in this case - and given the populist and unwise economic decisions that it takes, it will never help the cause.
So while injecting money may be good for a short while, somebody will have stand up and revamp the system. Enough time has passed and the notion of government has no magic wand has passed its sell date.
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