ISLAMABAD: The government intends to resolve the circular debt through procuring one billion dollars, each, from the World Bank and the Asian Development Bank, with the commitment to begin implementation of the stalled power sector reforms. This was stated by an official in the Ministry of Finance.
The official said that the government has converted Rs 391 billion parked in the Power Holding Company on account of circular debt on power sector and commodity operation on Friday into consolidated debt by issuance of Pakistan Investment Bond (PIB) for five years and T-bills for one year. According to the official, circular debt of Pepco stood at Rs 313 billion and commodity operation Rs 78 billion.
This conversion of debt on government books would increase below the line fiscal deficit by 1.8 percent in the current fiscal year and the decision to consolidate the debt was taken subsequent to consultation with the International Monetary Fund. This will, the official said, create sufficient space for the power sector to begin operations without the circular debt debilitating the country's generation capacity. The T-bills were offered on 11.82 percent interest rate and interest rate of PIB would be average auction rate of last two bonds.
The official said the power sector and revenue generation are two major challenges for the country and the government was working in both sectors to improve the performance. On power sector, the official claimed that boards of Central Power Purchase Agency (CPPA) and genco have been constituted in line with the recommendation of committee on energy sector. The revenue collection performance has considerably improved in the first quarter of the current fiscal year with major contribution came from revenue generation measures in March 2011. The fiscal deficit for the first quarter remained at 1.1 percent compared to 1.5 percent for the same period of last year and export growth was also satisfactory. The external account is the only area of concern for the government.
About restructuring of Pakistan Railways, he said that Rs 6.1 billion has been arranged for the entity through a consortium of banks led by National Bank of Pakistan (NBP) to turn around the organisation. He said that Pakistan Railways is a commercial organisation with capacity to improve the performance and could operate with the subsidy injection. The official said that Railway would run a train in the private sector and its freight sector is also being revived as Pakistan State Oil (PSO) and National Logistic Cell intend to use train for transportation of oil and other goods through Pakistan Railway. The official maintained that the income of railway has dwindled from Rs 28 billion Rs 14 billion during the last three years.
About Pakistan International Airlines (PIA), he said that the government does not have fiscal space to provide it cash, but would facilitate it for restructuring of debt with the cognition of financial and administrative restructuring. The Article-IV consultations with the International Monetary Fund (IMF) are going to take place in Dubai on November 9-16, added the official.