- Tariff hike is major part of the IMF's talks with Pakistan that is seeking a successful review of the Extended Fund Facility
As Islamabad looks to conclude its negotiations with the International Monetary Fund (IMF), Finance Minister Shaukat Tarin has said that the government will increase power tariffs in a "gradual manner", adding that there is a dire need to improve efficiency of the country's energy sector.
Tarin, who is in the US to attend the World Bank and IMF annual meetings, made these remarks during a session arranged by the United States Institute of Peace on ‘Pakistan’s Economic Future’.
Power tariffs form a major part of the IMF's talks with Pakistan that is seeking a successful review of the Extended Fund Facility that would pave way for a billion-dollar inflow.
Business Recorder reported earlier that after an understanding with the IMF, Power Division has prepared a summary for the Federal Cabinet to seek a final nod for further raise in base tariff by Rs1.39 per unit from November 1, 2021.
Tarin said that while Pakistan understands the need to increase tariffs, it wants to pursue a gradual route so that inflation does not increase faster.
“Pakistan’s GDP and per-capita income are growing," said Tarin. "When the IMF talks about increasing the tariffs, we believe that if you do this without structural changes it will only increase inflation and is going to make our industry uncompetitive.
"But we also see their point of view. So we have just had some technical discussions with them and we will increase these tariffs in a gradual manner in a way that it does not increase inflation rapidly."
Pakistan has already seen higher inflation in recent months with international commodity prices almost certain to cause further pressure. The central bank has already hiked the key interest rate by 25 basis points — the first upward revision in over 2 years.
Tarin said that as the economy grows, which the finance minister expects will be at a pace of 5% this fiscal year, Pakistan's power sector becomes more important in terms of efficiency and reliability.
“We have to make capacity payments. As the economy grows, we also have to improve the efficiency of these public sector companies.
“I think all that is being successfully negotiated with the IMF,” he said.
Tarin said that the government took difficult and unpopular decisions when it took over because the economy needed a turnaround. "We have taken some steps to revitalise the agriculture sector, exports, housing.
“The good thing (now) is that we're probably growing faster than 5% but that also means that we have to ensure that (the economy) doesn't overheat."
Elaborating on his visit to the US, Tarin said concluding the review through the IMF “is the most important part of my visit".
"I have come over here because we have completed the technical level discussion. I think the progress we have made today is encouraging.”
On Afghanistan, Tarin said the situation on ground is precarious.
“We must understand that Taliban are probably running out of cash, and by the end of this year, if the world does not get together to support them on humanitarian grounds at least, then there could be complete chaos.
"There could be a situation where even the Taliban may not be able to control. What can happen is that it will spill over into Pakistan.”
Talking about attracting foreign investors, Tarin said Pakistan’s security is under control, and the government is looking to make an effort to increase foreign direct investment.
On Pakistan's position regarding China and the US, the finance minister said that Pakistan's strategy is very clear.
“We want to be friends with everybody including China and the US. We have been in major strategic partnerships with the US for the past many decades, so I think our friendship with China will not affect our relationship with the US."
Tarin said China has helped Pakistan, and spent billions in this regard. "We value that but that does not mean that we will become China-centric.
"We are open and we want to be doing business with not only China but the United States and everybody else. I don't think there should be any misconception that we will tilt towards one or the other.”