The Pakistani government and the IMF are anticipated to conclude their negotiations in three days. The lender demands that Pakistan stop all unforeseen electricity subsidies and raise electricity prices by 50%.
Prime Minister Shehbaz Sharif has given his approval for the government team to comply with the IMF’s demand to raise the power tariff; the lender wants to do so by 50%, but the government is only willing to go as high as 20–33 percent.
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The IMF is unwilling to implement previous agreements, despite Pakistan gradually realizing that it must comply with all of the lender’s requirements in order to receive more than $1 billion in bailout funding.
Sources claim that the Power Division gave the PM several rate increase options, including an average basic tariff increase of 7.74 rupees per unit and a quarterly tariff increase of 4.26 rupees per unit. IMF guidelines state that by June 2023, the average base rate, which is currently around Rs. 24 per unit, could rise to Rs. 32 per unit.
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The government already increased the base tariff by Rs. 7.91 per unit, so when it goes into effect, it will be the second increase this fiscal year. After the initial walk failed to reduce losses, people were forced to acclimate to new energy sources. The next walk will only make things worse and more difficult for the majority of people.
According to a revised CDMP that the Power Division had previously presented, the government would add Rs. 952 billion to the circular debt without raising the tariff. The government told the IMF that it would impose quarterly levies in order to pay off an additional Rs. 73 billion in circular debt. The cost of electricity will rise by an additional Rs. 3.62 to Rs6.14 per unit from now until June (FCAs), excluding the effects of the upcoming Fuel Cost Adjustments.
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The Power Division believes that, despite the IMF’s worries, it may be able to recover Rs. 43 billion between July and December 2023, potentially lowering the increase. In the current fiscal year, the government had only budgeted Rs. 355 billion for electricity subsidies.
The IMF asserts that there is little to no fiscal room for additional subsidies, forcing the government to close the gap by increasing electricity rates and taking other emergency measures. In addition, the crisis lender has requested that the government present a plan for higher tariffs, which would also include the cancellation of the Rs. 143 billion exporters’ package.
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The Power Division has requested additional subsidies totaling Rs. 675 billion, bringing the required sum above Rs. 1.03 trillion, in order to manage the country’s rising circular debt. Because of the delay in making decisions, which was mentioned in the meeting with PM Shehbaz, the cost of repaying the IMF program has increased.
In the past, the IMF had refused Pakistan’s request for a price exemption for buyers of up to 300 units and insisted on a monthly price increase for buyers of 200 units and more. For those who buy a lot of goods and services in this region, the prime minister ordered that the price increases be as high as possible.
In opposition to the negotiations, the PM also wants to maintain the package of subsidies for the export-oriented industry, but it is unlikely that the IMF will agree to it in its current form.
