Islamabad

The International Monetary Fund (IMF) review mission has rejected Pakistan's revised Circular Debt Management Plan (CDMP). It has called on the Pakistan government to increase the electricity tariff in the range of Pakistani Rupees (PKR) 11-12.50 per unit to restrict the additional subsidy at PKR 335 billion for the current fiscal year.

The International Monetary Fund review mission led by Nathen Porter arrived in Islamabad on Monday and both sides will continue to hold talks to complete the pending ninth review under the USD 7 billion Extended Fund Facility (EFF).

Circular debt occurs when one entity facing problems with its cash inflows does not make payments to its suppliers and creditors.

The IMF has called the revised CDMP "unrealistic", which is made on the basis of certain wrong assumptions. The Pakistan government will have to make changes in its policy prescription to restrict the losses of the power sector.

The IMF and Pakistan's Ministry of Defence will work out a gap on the fiscal front after which various additional taxation measures will be finalised through the upcoming mini-budget.

The revised CDMP has called for an increase in the circular debt to the tune of Rs 952 billion for the current fiscal year against an earlier projection of Rs 1,526 billion. The Pakistan government shared its revised CDMP with the IMF high-ups here on Wednesday.

The Pakistan government's revised CDMP demonstrated 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 for the third quarter from June to August.

Furthermore, the IMF has raised questions on how the Pakistan government calculated its additional subsidy requirement figure of Rs 675 billion for the current fiscal year. The revised CDMP envisages restricting losses of DISCOs to 16.27 per cent on average during the current fiscal year.

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According to the report, the Pakistan government has envisaged the target to recover Fuel Price Adjustment (FPA) charges deferred last summer to fetch Rs 20 billion against estimates of Rs 65 billion made last summer.