EDITORIAL: The Minister for Finance and Revenue Muhammad Aurangzeb’s Sunday press conference was a judicious attempt to calm the jittery domestic market that the government is successfully engaged in dialogue with three friendly countries - China, Saudi Arabia and the United Arab Emirates - to roll over the existing 12 billion-dollar debt for the duration of the three years one month long (thirty-seven months) Extended Fund Facility (EFF) International Monetary Fund (IMF) programme and is also hopeful of some accommodation in servicing the CPEC debt.
The 12 July IMF press release emphasised, as did its predecessor EFF dated July 2019, “continued strong financial support from Pakistan’s development and bilateral partners will be critical for the programme to achieve its objectives.” While Business Recorder has always advocated for the need to slash government expenditure rather than to raise taxes as a means to contain the worrisome unsustainable deficit yet sadly this option was not under consideration for the budget 2024-25 as current expenditure was raised by over 20 percent that included a 20 to 25 percent raise in salaries of government employees.
However, the request for increase in period of 12 billion dollar rollover from one year to three years is likely but the same cannot be said about any change in the servicing of the large debt owed mainly to Chinese Independent Power Producers estimated in the budget 2024-25 documents as outstanding power sector stock of 2.457 billion dollars (70 percent of total government guarantees).
The 12 July 2024 IMF press release indicating a staff-level agreement has been reached stipulated the need to restore “energy sector viability and minimizing fiscal risks through the timely adjustment of energy tariffs, decisive cost-reducing reforms, and refraining from further unnecessary expansion of generation capacity” – a statement that necessitates some serious out of the box thinking other than to keep belabouring the need to: (i) end power theft through revenue-based load shedding; (ii) privatisation of distribution companies on the assumption that efficiency would rise automatically; and (iii) promoting solar/wind cheaper energy which is without doubt a cause for higher tariffs because the existing generation capacity is a lot higher than demand which is being deliberately trimmed through lower fuel imports (except of RLNG from Qatar because of take or pay stipulation in contract) due to a dearth of foreign exchange though that has in turn upped the capacity payments agreed with the IPPs.
The Minister for Power categorically rejected that any contract signed with the IPPs during the tenure of the Nawaz Sharif-led government will be reneged on because that would not only act as a deterrent to any future foreign investment inflows but also anger China which set up the IPPs in good faith at the rates mutually agreed upon.
While the government clearly is between the devil and the deep blue sea with respect to the energy sector yet there is clearly no out of the box thinking with respect to the power sector so far. The one major source of concern with respect to revenue-based load-shedding is the lack of raw data of the total value of the electricity theft on feeders that cater to poor sections of society where receivables are very high against those that are unpaid by areas inhabited by the influential, be they operating in the industrial, residential or commercial sectors.
The major issue with viewing privatisation of distribution companies as the final solution is the unjustified tariff equalization policy that requires massive subsidies each year to Discos. And finally, while renewable energy is the way forward yet unless these IPP contracts have ended their useful life this would have to be deferred as those who can afford to set up solar and wind energy systems are causing a further rise in tariffs (under capacity payments) for those who cannot afford them.
The market jitters may have eased somewhat though the oft cited stock market performance has never reflected the fortunes of the middle income earners or the poor and consists of rather limited numbers who deal in stocks and shares – a contention backed by the low taxes collected from the stock market in this country. However, protests against higher taxes, inflation and load-shedding are rising throughout the country – some spontaneous though some are clearly led by political parties.
The daunting challenge for the government in general and the Finance Minister in particular is the growing discontent and anger in the general public reeling from stagflation whereby the domestic and external rupee erosion coupled with lower job opportunities is raising the poverty levels even higher than the prevailing 41 percent.
Copyright Business Recorder, 2024