In 2024, a plan aimed at reducing the circular debt stock was put forth, only to be swiftly rejected by the IMF. Fast forward to 2025, and we find ourselves presented with yet another proposal, cloaked in new language but ultimately pursuing the same goal: a reduction in the circular debt stock. The likely outcome? A repeat performance of rejection from the IMF.
The architects of this latest plan may argue that the latest iteration is different—no government guarantees and no increase in public debt are promised. Instead, it’s framed as a commercial arrangement with banks designed to clear approximately Rs1.3 trillion of circular debt over five to seven years. This, they contend, circumvents the need for IMF approval.
Yet, this same mastermind had previously assured us of the efficacy and revenue neutrality of last year’s plan. Now, with a different set of arguments but the same fervor, we find ourselves in a déjà vu scenario. The IMF likely senses that the same leakages that plagued previous initiatives remain unaddressed. The earlier plan did not sufficiently address the lender’s concerns regarding their effectiveness or real impact, possibly causing a breach of trust that has yet to be repaired.
The IMF might be wondering why the obsession with merely reducing the stock of circular debt. Historically, the Fund has emphasized controlling the flow of debt rather than merely clearing existing stock—an approach that ensures future accumulation is curtailed. This perspective holds weight; after all, back in 2013, Finance Minister Dar cleared around Rs500 billion from the power sector’s circular debt through direct fiscal intervention, only for that stock to reaccumulate over time.
Today’s focus should shift towards reforming the sector itself and eliminating the conditions that allow for such stock to build up by curbing flow entirely. However, challenges abound grid consumption is on a downward trajectory, dipping below 9,000 MW during daytime hours in March 2025—a stark contrast to winter months. The increased penetration of solar energy has led to significant variations in grid demand.
The IMF’s concern is valid: how can they expect to recover funds from consumers if grid consumption continues to decline? This is not merely a theoretical issue; it strikes at the heart of any potential power sector reforms and consumer tariff adjustments. Given this reality, seeking IMF approval becomes not just prudent but essential—a fact that may lead to further hurdles in gaining their endorsement for any new plan.
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