Satisfying the IMF for next tranche

Power tariff hikes imminent

Pakistan is currently engaged in the final phase of talks with the IMF to release the next tranche of $1 billion under its $6 billion three-year Extended Fund Facility and negotiations have stalled over the Fund’s demand that the Nepra Ordinance be passed before things can move forward towards any approvals. Another agenda item of these talks is to reach an agreement over next year’s budget to be tabled in the National Assembly in the coming days. The Nepra Ordinance is significant as it will give the regulator the power to automatically increase electricity prices without seeking approval from Cabinet and would additionally allow the government to levy surcharges on consumers. Going by the way the opposition parties were fighting amongst themselves in Parliament during the Budget discussion session, resulting in a walkout as well, the government should not have much trouble passing the IMF-specific legislation. They were able to pass a few key ordinances, including an extension in the NAB Ordinance 1999. By satisfying the IMF in this regard, the government would be securing much needed future funding to finance its external debt as the IMF nod would encourage other lenders such as The World Bank and others to provide support as well.

However, the rise in electricity tariffs of around Rs 5.65 per unit in six phases to recover an additional Rs 884 billion from consumers through June 2023 due to the Nepra Ordinance, comes with a political cost. Prime Minister Imran Khan and his newly appointed Finance Minister Shaukat Tarin have perhaps overcommitted to the public after promising to get the IMF to agree on no power rate hikes in the near future. One way to avoid these hikes would be to reduce the circular debt through improvements in efficiency that would reduce power generation costs.

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Going by this government’s track record of an inability to introduce and execute reforms in the energy sector, achieving higher efficiency does not seem possible. The same goes for the costs incurred through widespread and unchecked electricity theft. Reduction in line losses is another way to go about this but that would require significant investment in infrastructure, money which would be hard to find. It seems the public should brace itself for another bout of high inflation as electricity prices start to rise once again.

The Editorial Department of Pakistan Today can be contacted at: [email protected]


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