In order to comply with IMF requirements, Pakistan approves the Circular Debt Management Plan.
The government’s approval of the Circular Debt Management Plan for the current fiscal year is a major step towards meeting the requirements of the International Monetary Fund (IMF) loan program.
The federal cabinet is anticipated to provide the final permission after the Economic Coordination Committee (ECC) gave its preliminary approval.
The Ministry of Finance’s records state that the new plan seeks to keep the growth of circular debt to a maximum of Rs36 billion. At Rs2,393 billion, circular debt skyrocketed in the previous fiscal year. Although the government promised in its IMF agreement that circular debt would not surpass Rs2,310 billion, estimates for this fiscal year indicate that, in the absence of mitigating measures, it may potentially reach Rs1,077 billion.
In order to properly manage this debt, the government has suggested a number of initiatives, such as targeted subsidies, attempts to lower line losses, and a timely increase in power rates. The debt management plan will stop the rise of circular debt, according to the report.
Similar steps have been successful in reducing debt growth in the past, saving Rs57 billion in 2023 and averting an increase of Rs27 billion in 2022, according to the report. “Last fiscal year, the circular debt increased by Rs83 billion,” the study states.
The study claims that the Circular Debt Management Plan for the current fiscal year was likewise created using NEPRA’s estimations. As per the research, the expansion of the circular credit will further curtail power generation and transmission, hence diminishing economic development.
The letter also stated that “Efficiency needs to be improved to resolve the circular debt issue.”
According to the report, line losses, unpaid generation expenses, high loan interest rates, and low distribution company (DISCO) collection rates are the primary causes of the development in circular debt. The plan also includes the finance division’s budgetary allocations, guaranteeing that funds are set aside for