ISLAMABAD: Concerned over former Prime Minister Imran Khan’s ‘Relief Package’, the International Monetary Fund (IMF) indicated prior to the smooth transition to the new government earlier this month that it has no plans to extend Extended Fund Facility (EFF) completion scheduled on September 30, 2022.
This was disclosed by Asian Development Bank’s (ADB’s) Consultative Mission, led by Seung Duck Kim Senior Energy Specialist (Mission Leader) that met with IMF team in Islamabad during its visit to Pakistan on March 28 - April 1, 2022.
The ADB Mission, in its Aide Memoir, stated that IMF’s 7th review of EFF is currently on hold amidst ongoing political events.
According to the ADB Mission, during the consultation with IMF, the latter raised concerns about the relief package that widened the fiscal deficit and the possibility of default on multiple benchmarks under the 7th and 8th reviews. IMF also indicated that there is no plan yet to extend EFF completion scheduled on September 30, 2022.
The ADB Mission noted that it would continue to coordinate with IMF in energy sector reforms and in the energy sector.
The Mission held extensive discussions with the senior officials from the National Electric Power Regulatory Authority (Nepra), Ministry of Finance (MoF), Ministry of Energy (Power and Petroleum Divisions), and the Ministry of Economic Affairs (EAD). The Mission also met the staff of the IMF and the World Bank (WB).
The wrap-up meetings were held separately with the Ministry of Finance and the Ministry of Economic Affairs to confirm the Government’s commitment to the program.
On July 3, 2019, the IMF approved a 39-month extended arrangement under the Extended Fund Facility (EFF) for Pakistan for an amount of SDR 4,268 million (about $6 billion or 210 percent of quota) to support the government’s economic reform program.
Alongside, the Government requested ADB to support energy sector reforms under the proposed Energy Sector Reforms and Financial Sustainability Program of $ 1 billion spread over three subprograms in 2019 ($300 million), 2021 ($300 million), and 2022 ($ 400 million), respectively. The Program was conceived in close coordination with key development partners including the G5 group of donors and underpins the IMF’s EFF framework.
ADB has been assisting the Power and Petroleum Divisions NEPRA and Energy Wing of the Planning Commission in providing advisory and analytical assistance in the sector. ADB has supported the preparation of the Electricity Policy 2019, Renewable Energy Policy 2019, which fed into the Integrated Generation Capacity Expansion Plan (IGCEP) of the government.
The Program is designed to finance three subprograms through interlinked policy actions, reform areas of the three sequenced subprograms are underpinned on three pillars: (i) securing financial sustainability, (ii) strengthening governance, and (iii) reinforcing infrastructure improvements.
ADB Board approved subprogram 1 ($300 million) on December 9, 2019, that was co-financed by the Korean Export Import Bank in the amount of additional $ 80 million. Subsequently, on December 10, 2021, ADB board approved subprogram 2 ($300 million). As the last subprogram under the program, ADB expects the approval of subprogram 3 in Q4 2023.
According to ADB, Power Division confirmed that the Government is fully committed to sector reforms that have been agreed upon with development partners. Due to high inflationary pressure and imported fuel prices, there have been some delays in approving tariff adjustments which have caused higher than expected circular debt flows for FY 2022.
It is likely that the CD flow target of Rs l67 billion may not be met by June 30, 2022. Revised CD flow projections are under preparation, which will not be much deviated from current targets, and would be shared with ADB soon.
CD stock is expected to be reduced to Rs 800 billion by 30 June 2022, as was targeted for FY2022 and the MoE confirmed that MoF will fully fund Rs 106 billion under the relief package for subsidized power tariff (reduced by Rs. 5 per unit) to consumers from March 01 to June 30, 2022.
The relief package is a one-off exercise and the tariff adjustment mechanism will continue without interruption. As one of the chronic sector challenges, the Secretary strongly requested ADB’s support for investments in Discos to rehabilitate and modernize the networks and curtail system losses in line with the recently approved WB project.
Copyright Business Recorder, 2022