Amid a worsening economic and political crisis, cash-strapped Pakistan on Wednesday withdrew electricity and gas subsidies under pressure from the International Monetary Fund to revive an aid package of $7 billion.
According to information available, the government also increased the power tariff for the export industry by Rs 12.13 per unit to implement conditions set by the global funding agency.
The government ended the power subsidy at Rs 19.99 per unit to the export industry, as per a notification. The power division has written a letter to K-Electric and other power distribution companies for the implementation of this decision.
The government has already agreed to raise electricity and gas prices as Pakistan and the IMF moved closer to a revival of the $7-billion Extended Fund Facility (EFF), which has been stalled for months.
The IMF has placed four prior actions to meet the external financing gap of $7 billion, including:
- Imposition of permanent power surcharge of Rs 3.39 per unit plus 0.43 paisa (a total of Rs 3.82 per unit)
- Market-based exchange rate
- Hiking discount rate by 150 to 250 basis points
- Securing confirmation from bilateral partners.
On Tuesday, Moody’s Investors Service downgraded Pakistan’s local and foreign currency issuer and senior unsecured debt rating to Caa3 from caa1 in view of its “increasingly fragile liquidity and an external position which significantly raises default risks”.
The ratings agency said the government was implementing some tax measures to meet the conditions of the IMF programme and a disbursement may help to cover the country’s immediate needs.
“Weak governance and heightened social risks impede Pakistan’s ability to continually implement the range of policies that would secure large amounts of financing and decisively mitigate risks to the balance of payments,” it said.
In dire straits
According to media reports, the government has directed the accountant general to cease clearing of bills, including salaries. Operational cost-related releases faced difficulties mainly due to the current economic crisis.
Finance Minister Ishaq Dar, while meeting on February 22 with a delegation of Rothschild and Co, had said “the government was steering the economy towards stability and growth”. He added that “the government is committed to completing the IMF programme and fulfilling all international obligations”.
Even as Pakistan faces a wave of problems on multiple fronts, its growing debt can no longer be overlooked as inflation soars and foreign reserves crumble. The country was severely impacted by cataclysmic floods that put one-third of the country under water, displaced more than 33 million and caused economic damages to the tune of $12.5 billion to the country’s already teetering economy. The devastating floods last year killed 1,739 people.
Last month, Pakistan Prime Minister Shehbaz Sharif had said the IMF was giving a “tough time” to the government during talks for the restoration of the loan. He had said the economic challenge was unimaginable, and that the IMF conditions were “beyond imagination” but it was mandatory to fulfil them.
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