Govt braces itself for first review of SBA

ISLAMABAD: Ministry of Finance (MoF) has asked all ministries/ divisions to be ready for first review of International Monetary Fund’s (IMF) Standby Arrangement (SBA) to ensure successful completion of the review, official sources told Business Recorder.

In a letter to 19 ministries/ divisions/ organisations/ entities, the Finance Ministry stated that as the 1st quarter of FY 2023-24 ended in September, 2023, it is expected that the first Review under the IMF SBA program will be held shortly.

All the concerned public sector stakeholders have been requested to take a stock of the actions communicated through a letter of July 19 and September 28, 2023, the sources added.

First review under SBA becomes due: Ministries spurred into action

All ministries/ divisions and entities, sources said, have shared required data with the Finance Division for onward submission to the IMF, before the first review formally starts.

Most recently, Secretary Finance Imdadullah Bosal also wrote letters to all the concerned ministries/ divisions, reminding them of commitments made with the IMF, asking them to comply with all those pledges made with the Fund.

He also referred to Finance Division’s letter of July 19, 2023, saying that the first review under SBA is scheduled for November, 2023; therefore, it is critical that all commitments including structural benchmarks, quantitative criteria, indicative targets and other commitments are met as agreed with the IMF.

According to Secretary Finance, Memorandum of Economic and Financial Policies (MEFP) agreed with the IMF provides the following indicative targets, structural benchmarks and other actions relevant to Ministry of Energy with the following two major indicative targets: (i) ceiling on power sector payment arrears for end September 2023 was negative Rs 155 billion whereas at end-December the figure is Rs 64 billion; and (ii) Structural benchmark notification of the Annual Rebasing (AR) for FY24 will take effect 1 July, 2023, which has already been met.

Other actions as stated in the letter are: (i) containing spending, especially by limiting energy subsidies, also to be reflected in the cabinet approved update of the Circular Debt Management Plan (CDMP) for FY24 by end-July 2023-primarily through notification of the annual rebasing of the power tariff for FY24 in full and with effect from July 01, 2023 as determined by National Electric Power Regulatory Authority (Nepra) in July 2023, continuation of regular tariff adjustments in line with established formulas in a timely manner, and acceleration of structural cost-reducing reforms; (ii) to ring-fence the fiscal program, it is reiterated to continue focus on critically urgent energy sector policies; (iii) our commitment not to introduce any fuel subsidy, or cross-subsidy scheme in FY23 and beyond; (iv) key priorities, which will also feature in the updated FY24 CDMP that the cabinet is expected to adopt by end-July 2023, which are ensuring cost-recovering tariffs.

Nepra will continue with automatic notifications of regular QTAS and FPAS in line with established formulas in a timely manner, supported by efforts to spare the protected slabs (as this will help both achieve cost recovery and increase the progressivity of the tariff structure for residential consumers, as intended by the 2022 residential subsidy reform).

The letter further noted that as the most critical part of managing the CD flow, the government has taken measures toward improving Discos’ efficiency and governance (also supported by the new SOE law and policies). For FY23, while technical losses are expected to be reduced to 16.27 percent from 16.85 percent in FY22, collections are expected to remain at FY22 levels because of the floods.

The government will pursue other reforms, most notably: (i) accelerate the green energy transition as per the 2021 National Electricity Policy (including by seeking Nepra’s approval of both the annually updated IGCEP and Transmission System Expansion Plan that meets the requirements for an increased share of variable and cheaper renewable energy in the generation mix); and (ii) seek Nepra’s approval of the updated Grid Code and Commercial Code to set the objectives, principles, rules, procedures, rights, and obligations that govern trading in the new wholesale market (expected to be launched in April 2023 – an expectation that remains unmet), and thus to improve the efficiency in distribution.

Copyright Business Recorder, 2023