ISLAMABAD: Pakistan has committed to IMF that the circular debt (CD) of Rs 2.4 trillion (2.1 percent GDP) will be cleared by end of fiscal year 2025.
This was stated in the IMF report “First Review Under the Extended Arrangement Under the Extended Fund Facility, Requests for Modification of Performance Criteria and Request for an Arrangement Under the Resilience and Sustainable Facility” released on Saturday.
The government assured the Fund that the existing stock of Rs 2.4 trillion will clear, by end-fiscal year 2025. Rs 348 billion via renegotiation of arrears with IPPs (Rs 127 billion of which will be via already-budgeted subsidy for CD stock clearance and Rs 221 billion of which will be via Central Power Purchasing Agency (CPPA) cash flow); Rs 387 billion via waived interest fees; and Rs 254 billion via additional already-budgeted subsidy for CD stock clearance; Rs 224 billion in non-interest-bearing liabilities will not be cleared.
The remaining Rs 1,252 billion will be borrowed from banks to repay all PHL loans (Rs 683 billion) and to clear the remaining stock of interest-bearing arrears to power producers (Rs 569 billion). The loan will be taken on at a rate favourable to that currently paid on the CD stock (a major driver of CD flow and accumulation) and annual payments will be financed through debt service surcharge (DSS) revenues over six years.
The DSS will be set at 10 percent of the NEPRA-determined revenue requirement, adjusted each year at the time of annual rebasing, per current practice. In the event that DSS revenues fall short of the annual payment requirement, the DSS will be increased to make up for the shortfall and calibrated per any anticipated future shortfalls in the succeeding year. To facilitate this, government will adopt legislation to remove the 10 percent debt service surcharge (DSS) cap by end-June 2025. There will be no fiscalization of any revenue shortfall and a plan will be prepared to retire, in a timely way, the interest-bearing CD stock anticipated at the end of fiscal year 2025 (expected to be no greater than Rs 337 billion, a result of gross flows this year), alongside the fiscal year 2026 budget process, which will not utilize subsidy resources.
With one of the primary drivers of CD flow interest charges on delayed payments to IPPs significantly reduced, CD targets have been set lower. These targets will continue to decline to zero by fiscal year 2031, the end of the operation.
The IMF pointed out timely notification of the annual rebasing of power sector for fiscal year 2026, set at cost recovery and incorporating cautious assumptions that take account of the sensitivity of costs to internal and external factors is ‘critical’.
The stock of power CD stood at PRs 2,444 billion (2.1 percent of GDP) at end-January 2025.
Copyright Business Recorder, 2025
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