Government faces IMF delay due to the bill crisis

The International Monetary Fund (IMF); has not immediately granted approval to Pakistan’s request for spreading out the payment of August’s electricity bills over six months. This decision comes amidst ongoing protests in various parts of the country, now in their fifth consecutive day, against the hefty bills.

Adding to the momentum of the protests, the trader community also joined the demonstrations on Tuesday, putting additional pressure on the government.

In a significant meeting, the global financial institution asked for more time to review Pakistan’s proposal for allowing consumers to pay August’s electricity bills in six installments. These bills have triggered public protests across multiple cities.

Just before this meeting with the IMF, the federal cabinet attached a condition to their approval – the recovery of August’s bills, originally scheduled from October 2023 to March 2024, is now contingent on the prior approval of the IMF.

However, breaking the payments into monthly installments won’t necessarily ease the burden on citizens, as they will still have to manage their regular bills alongside the additional installment payments for August.

Former Prime Minister Shehbaz Sharif’s cabinet had approved an electricity price increase of over Rs8 per unit on July 31, effective from July 1. Consequently, power distribution companies not only raised prices for August but also collected arrears for July. The average per unit increase amounted to Rs5.45.

Although there was consensus in the cabinet meeting regarding six monthly installments, a final decision was deferred due to its potential financial impact.

The finance ministry informed the cabinet that IMF approval is necessary before making any decisions about installment-based bill recovery.

Subsequently, Pakistani authorities engaged in discussions with the IMF, seeking permission to split the bills into six monthly payments. The proposed recovery period would extend from October 2023 to March 2024.

The IMF requested time to assess the proposal’s impact on circular debt, budgeted power subsidies, and the overall primary budget surplus target of 0.4% of GDP.

The interim government convened emergency meetings on Sunday and Monday, but no conclusion was reached. Despite a third discussion on Tuesday, the final decision was postponed until the IMF’s approval.

Under the IMF program, Pakistan is obligated to increase electricity prices annually. This led to the maximum per unit price for domestic consumers reaching Rs51, while it is Rs47 per unit for industrial and commercial consumers. Additionally, there’s a plan to increase prices by Rs4.37 per unit due to the previous fiscal year’s quarterly tariff adjustment.

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