IMF urges timely gas tariff adjustments to combat circular debt

WEB DESK: The International Monetary Fund (IMF) has called on Pakistan to maintain consistent and timely adjustments to gas tariffs, stressing the importance of following a strict 40-day timeframe while ensuring protections for vulnerable households.

This directive starts with the semiannual adjustment in June 2024. The IMF believes that these measures are crucial to preventing the flow of circular debt (CD) from increasing.

According to the IMF’s second and final review report, a series of delays in implementing gas tariff adjustments caused a backlog, but recent changes have led to a modest reduction in circular debt, which stood at Rs2,083 billion (equivalent to 2 per cent of GDP) as of January 2024.

The Fund advocates for continued gas price adjustments that align with cost recovery and support the phasing out of captive power usage within the current year. The focus should be on allocating cheaper natural gas to the most efficient power plants.

In addition, the IMF suggests that gas prices for all fertiliser companies should be standardized. To achieve this, the government has indicated plans to implement a weighted average cost of gas (WACOG) across the country.

This approach would introduce a uniform gas pricing system, facilitate cost recovery, and ensure a more balanced energy sector.

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