Another blow to Pakistan: IMF rejects its debt management plan, calls it 'unrealistic'

The International Monetary Fund (IMF) on Thursday rejected Pakistan's revised Circular Debt Management Plan (CDMP), asking them to increase the electricity tariff in the range of PKR 11–12.50 per unit in order to restrict the additional subsidy at PKR 335 billion for this fiscal year.

The global financial institute and Pakistan held talks to complete the pending ninth review under the $7 billion Extended Fund Facility (EFF). It called the revised CDMP as unrealistic and said it is based on wrong assumptions. It has asked the Pakistani government to revise its policy prescription to restrict losses in the power sector.

What did the IMF have to say?

The Pakistan government's revised CDMP, shared with the IMF on Wednesday asked for an increase in circular debt for this fiscal year to Rs 952 billion against the earlier prediction of Rs 1,526 billion. It also stated that the government needed an additional subsidy of Rs 675 billion despite increasing the power tariff in the range of PKR 7 per unit through quarterly tariff adjustment in the first two quarters of 2023 and PKR 1.64 in the third quarter that ended in August.

The IMF has also asked the government to raise tariffs in the range of Rs 11 to Rs 12.50 per unit, which will help reduce the requirement of additional subsidy into half from the earlier existing levels of Rs 675 billion in the current fiscal. It also raised questions on how the government calculated the required figure for additional subsidy.

According to the CDMP the losses of DISCOs is to be restricted to 16.27 on average during this fiscal. The Pakistan government has also set a target to recover Fuel Price Adjustment (FPA) charges deferred during last summer to get Rs 20 billion against estimates of Rs 65 billion it made last summer.

The IMF review mission led by Nathen Porter arrived in Islamabad on Monday.