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IMF wants Pakistan to tackle circular debt: Questions failure to fully implement last strategy to

December 09, 2018

ISLAMABAD: The International Monetary Fund (IMF) in consultation with other multilateral creditors has asked Pakistan to come up with a comprehensive strategy for tackling Rs1.3 trillion circular debt on short, medium and long-term basis.

The Fund has also asked as to why the last strategy for ending circular debt could not be fully implemented after completion of the programme in November 2016. “Reversal of policies and lackluster attitude on reform path has played havoc with the country’s economy,” the IMF and Pakistan team agreed during the parleys and then both sides evolved a consensus for preparing a new strategy to stop unbearable losses for the cash-bleeding power sector.

“The total amount of circular debt has gone around Rs1.3 trillion and the government is preparing a comprehensive strategy to tackle both stocks and flows of circular debt,” top official sources confirmed to The News on Saturday. The stocks of circular dent stood at Rs582 billion and flow at Rs690 billion and this amount is increasing every month. This amount of circular debt, they said, might have gone on higher side because this loss was piling up on a monthly basis.

“We are preparing a strategy which will be firmed up within one and a half months,” said top official sources. Now the strategy, they said, was focusing on tackling finding ways for subsidy provided to the AJK government on power as well as to Balochistan on tube wells.

The IMF team that visited Pakistan in November last seriously took up the issue of circular debt and argued that the policy of tackling circular debt was reversed in the aftermath of completion of the last Fund program as it stood at just around Rs350 billion which had now peaked to around Rs1.3 trillion. “The reversal of policies on many fronts is the main cause of existing quagmire which Pakistan’s economy is witnessing currently,” the IMF team assessed and endorsed by Ministry of Finance during the parleys. The loose fiscal policy had also put pressures on external front of economy but the overvalued exchange rate proved disastrous for the economy. On circular debt, the IMF assessed that the strategy to tackle circular debt lost its steam resulting into piling up of this monster again after November 2016. “Now Pakistan will have to undertake a comprehensive package, including rationalisation of tariff, plugging leakages, allowing Nepra to notify and implement determined tariff automatically and improving governance structure to overcome woes of cash bleeding power sector,” the IMF prescription given to Pakistan suggests.

When contacted, one top official of Power Division said the government had instructed them to prepare a strategy on this front and this task was underway not on the demand of the IMF but the government considered it in the best interest of the sector to implement all actions required to avoid piling up of circular debt up to such an extent in future.

The IMF sources said Pakistan will have to undertake short, medium and long-term policies to improve its economy.

They said parleys would continue between the two sides to strike consensus at staff level agreement, as it is the only way for presenting Pakistan’s case before the Fund executive board in months ahead.