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 News International reported.

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, as per The News International report.

Notably, the Pakistani government shared its revised CDMP with the IMF on Wednesday.

The revised CDMP has called for an increase in the circular debt to the tune of ₹952 billion for the current fiscal year against an earlier projection of ₹1,526 billion.

The Pakistan government's revised CDMP demonstrated that the government needed an additional subsidy of ₹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.

"The IMF has opposed the certain basis of the revised CDMP and asks the government to raise the tariff in the range of ₹11 to ₹12.50 per unit so that the requirement of additional subsidy could be reduced to half from its existing levels of ₹675 billion for the current fiscal year," The News International quoted top official sources as saying.

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, according to The News International report. The revised CDMP envisages restricting losses of DISCOs to 16.27 percent on average during the current fiscal year.

Reportedly, 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.

The markup saving due to IPPs stock payment will bring PKR 11 billion and the GST as well as other taxes on a collection basis will help recover PKR 18 billion in the current fiscal year, according to The News International.

The circular debt is estimated to be around PKR 2,113 billion until the end of Fiscal Year 2023, including the amount parked in the Power Holding Limited (PHL).

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