Circular debt

A sub-committee of the Senate Standing Committee on Finance expressed its dissatisfaction at the explanation provided by an official of the Ministry of Water and Power for settling the 480 billion rupee circular energy debt on 30th June 2013. The official had contended that pre-audit of the large sum was not carried out as it was an emergency situation and defined emergency as 12-hour-long load shedding and its consequent negative impact on Gross Domestic Product (GDP). Member Inland Revenue Policy informed the sub-committee that it had sent out letters to the Ministry of Water and Power requesting a clarification on payment of sales tax (total valued at 466 million rupees) on the total electricity supplied (valued at 2.8 trillion rupees) against the circular debt (input adjustment claim of 480 billion rupees) but received no response in spite of a reminder notice.
The documented background for the decision to retire 480 billion rupee circular debt leads one to a different conclusion namely that political considerations were allowed to be subordinate to economic considerations. The newly-appointed Federal Finance Minister Ishaq Dar, who took oath on 7th June, as chair of the Economic Coordination Committee of the Cabinet (ECC) approved the summary presented by the Ministry of Water and Power on 27th June 2013 to settle the 503 billion rupee circular debt: 380 billion rupees by 30th June 2013 and the remainder before 10th August. Dar then directed banks to remain open to transact the ECC approval to retire 380 billion rupee circular debt on 30th June 2013 - a Saturday - a banking holiday. The timing led even his supporters to maintain that the intent may have been to ensure that the bulk of the sum, with negative implications on the budget deficit, be calculated for the year when the PPP-led coalition government and caretakers would be held accountable and not the real decision-makers. The sub-committee members were informed by the official from the Auditor General of Pakistan that the pre-audit would have taken a maximum of three days but of course that would have implied that the loan would have been procured after 30th June which day heralds the end of a fiscal year in Pakistan.
The State Bank of Pakistan official pointed out to the sub-committee that the regulator had nothing to do with 'auditing process' while the Finance Division, under the administrative control of the Finance Minister, clarified that it sanctioned the payment after the ECC of the Cabinet, headed by the Finance Minister, authorized it. Dar is on record as having stated at the time that he took the decision on the instructions of Prime Minister Nawaz Sharif.
Be that as it may, the decision to retire the debt through loans would have been appreciated had it not resurfaced. At present, the consumers are paying an additional 43 paisa per unit as debt servicing but, in spite of this charge, by November 2016 the ECC of the cabinet was informed that the government failed to return 136.5 billion rupee loans that it had obtained from banks to retire the power circular debt which led the highest economic decision-making body to roll over the debt for two more years, including a grace period of one year - a not so good legacy for the next government.
It is unfortunate that the Sharif administration in its third tenure, unlike during the previous two tenures, has been frequently accused of not only non-transparency in government-to-government deals, inclusive of the game changer - China Pakistan Economic Corridor - but also in flouting government regulations designed to provide critical checks and balances with impunity. And have shown a marked reluctance to account for their actions/decisions in parliamentary panels meant to hold them accountable to the people - a basic prerequisite of a democratic dispensation.