Pakistan ‘agrees’ to hike power tariff by Rs4 per unit to secure IMF deal

ISLAMABAD: The federal government has agreed to increase the power tariff by Rs4 per unit in the current fiscal year as part of the conditions to secure a $3 billion loan from the International Monetary Fund (IMF).

According to private TV channel ARY News, a plan to control the circular debt of the power sector has been finalised between the Ministry of Finance and the IMF.

Sources said that the circular debt of the power sector will be capped at Rs2,340 billion this fiscal year.

Sources in the Ministry of Finance said that the government has assured to release more than Rs400 billion to reduce the circular debt, which will be released in instalments.

The sources said that the overall circular debt will increase by Rs122 billion in the current fiscal year, and the IMF was given a plan to prevent any further increase in the circular debt the next fiscal year.

According to the sources, the power tariff will be increased by Rs4 per unit to control the circular debt, and the government has assured the IMF that it will improve the recovery from defaulters.

The sources in the Ministry of Finance also said that according to the plan, the power tariff will be increased in phases.

The agreement with the IMF is expected to pave the way for structural reforms in Pakistan’s economy, which is facing an acute balance of payments crisis. The IMF said that the nine-month Stand-By Arrangement (SBA) “builds on” efforts under the Extended Fund Facility (EFF) programme that was due to expire on June 30.

The SBA will provide short-term financial assistance to Pakistan to address its balance of payments problems. Pakistan was expecting about $2.5 billion from the IMF under the ninth review of the EFF, but it was delayed due to differences over policy actions.

The IMF said that the SBA is subject to approval by its Executive Board, which is expected to consider the request on Wednesday (today). The approval of the SBA could also help Pakistan unlock credit from other lenders and raise money from the private market.

The agreement with the IMF came after Pakistan revised its budget for 2023-24 to introduce new taxes and expenditure cuts, and hiked its key interest rate by 100 basis points.

The IMF also called for a timely rebasing of power tariffs to ensure cost recovery. These measures have been criticised by opposition parties, businesses and consumers, who are already facing high inflation and low growth.