First review of IMF commitments: MoF evaluates progress across ministries concerned

ISLAMABAD: The Finance Ministry is reportedly taking stock of progress from the concerned ministries for first review of commitments undertaken in the IMFs’ Extended Fund Facility (EFF) 2024-27, both structural benchmarks and other actions, well-informed sources told Business Recorder.

Finance Ministry, sources said, has acquired update from all the concerned Ministries/Division on commitments.

Pakistan delegation led by Minister for Finance and Revenue, Muhammad Aurangzeb will be participating in 2024 IMF-World Bank annual meetings scheduled to take place from October 21-26, 2024 in Washington DC. The delegation will share update on commitments during the side-line meetings with the Fund officials.

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Some structural benchmarks, indicative targets and actions of power sector are as follows: (i) with the help of the Technical Advisor, all policy actions needed to prepare two Discos for transactions (end-January 2024; (ii) ceiling on power sector payment arrears - cumulative flow will be Rs 461 billion by December 2024, Rs 554 billion by March 2025 and Rs 417 billion by end June 2025; (iii) we will continue to refrain from netting out cross-arrears (unless they are independently audited) using “non-cash” settlements (eg, payables against the reimbursement of on-lent loans to Discos) and issuing government guarantees (eg, PHPL-issued Sukuks to transfer CPPA-G payables to PHPL) except where there is a need to substitute an existing Government guarantee on maturity; (iv) we will carefully review whether there is need for any additional capacity in the near term and will not enter into any further capacity commitments without prior commitment for new transmission infrastructure and once that infrastructure comes online and existing capacity is fully utilized at peak times;(v) accelerate the move to renewable energy. A key step in this process will be to build upon the recently-updated IGCEP and TSEP (2024-34) to mandate an increased share of cheaper renewable energy in the generation mix, private sector investments will help to facilitate achieve this goal; (vi) converting government-guaranteed PHPL debt into cheaper public debt. We have created the fiscal space to settle an amount of Rs 24 billion falling due in FY 25 from the budget and the outstanding principal amount of Rs 659 billion at the end of FY25 will be settled as per maturity of loans falling in subsequent years; (vii) in FY25, we will settle up to Rs 263 billion earmarked for IPPs and GPPs with revised PPA terms, using the established contract structure (10-year floating-rate PIBs and 5-year Sukuks in equal parts) or a more efficient financial instrument; (viii) we will also strive to reduce capacity payments as we pay arrears, either by renegotiating PPAs with a new strategy including lengthening the duration of bank loans, depending on adequate budget space and CDMP implementation progress; (ix) we will seek to convert existing imported coal-fired plants to domestic coal use. As an initial step in this process, we and relevant IPPs will jointly undertake an in-depth study for the purpose; (x) we will issue an RFP for the first Disco concession by end May 2025 and the first RFP for the first Disco privatisation by end September 2025; (xi) we are prioritizing plans to either privatise or enter into concession arrangements for the private management of 9 Discos;(xi) over the medium-term we aim to eliminate cross-subsidies to households, and replace it with directly-targeted cash transfers price support for vulnerable households to be provided via BISP; and (xii) the FY25 budget includes PRs 1,229 billion (1.0 percent of GDP) in power subsidies to address liquidity needs. This, along with tariff adjustments and cost-side reforms, will broadly stabilize the CD stock. The subsidy will cover (a) the projected tariff differential (PRs 663 billion); (b) arrears payments of FATA and KE (PRs 174 billion); (c) agricultural tubewells (PRs 10 billion); and (d) CD stock payments to compensate for the projected CD flow via PHPL principal payments (PRs 24 billion) and arrears payments to power producers (PRs 358 billion). The use of any resources allocated above this in the FY25 budget will be decided upon during the fiscal year, with the potential to retire up to an additional PRs 35 billion in CD stock or return these resources back to the Treasury.

In parallel, we are, with the support of the World Bank, continuing our efforts to reform tubewell subsidies, which primarily benefit large agricultural users, and have not budgeted tubewell subsidies for three provinces for FY25.

Copyright Business Recorder, 2024