Plans To Address Pakistan’s Circular Debt Keep Going Round in Circles

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Government Subsidies have long plagues Pakistan, just as they have many other developing countries. However, unlike many of its peers, Pakistan’s woes in the power/ electricity sector, first and foremost circular debt, has prevented the country from ensuring sufficient power for its people for over three decades. Periodic attempts by civilian governments to rectify the issue have failed.

Imran Khan has often said that “energy is the worst of all problems that his government has inherited.” Recently the Imran Khan led government announced it would raise electricity tariffs to generate more than PKR 1 trillion in additional revenue for ex-Wapda distribution companies. As per this program, an increase of PKR 4-5 per unit is going to be passed on to consumers till December 2022.

As an editorial in Daily Times noted, “it is difficult to see how such an arrangement can do anything to turn the economy around. It will put yet more burden on the people at a time when both growth and employment are very low and inflation is big enough a problem for the prime minister to show his finance minister the door only recently. Yet more expensive electricity will raise living and input costs across the board, further eating into people’s budgets and making yet another round of cost-push inflation inevitable.”

The Editorial points out that this decision “to rush into higher electricity tariffs” meant that the “more important processes of Federal Board of Revenue (FBR) reforms and effective mitigation of the circular debt” were “once again set aside for a quicker fix that will show the right numbers on paper and make the IMF happy enough to keep the money flowing.” Constantly “raising electricity tariffs to generate revenue” The Daily Times editorial points out “cannot be the final answer to Pakistan’s debt problem.”

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Author: Alia Khan