IMF throws cold water on Punjab’s cheap power plan

Islamabad:

The International Monetary Fund (IMF) has slapped Pakistan with a raft of new conditions on energy subsidies and provincial budgets after Punjab took a “fiscally reckless” decision to give electricity subsidies of Rs 45 billion to Rs 90 billion over two months .

Government sources told The Express Tribune on Monday that the global lender imposed at least three critical conditions on the Punjab government after the province gave Rs 14 per unit electricity subsidy for two months.

The IMF also called for an end to this temporary subsidy by September 30 and made it clear that no provincial government would give such fresh subsidy during the 37-month Extended Facility Facility (EEF).

The new terms may jeopardize Punjab’s plan to pay Rs 700 billion to provide solar panels to consumers who have up to 500 monthly consumption. “The provinces agree that they will not introduce any subsidy for electricity or natural gas,” according to a condition recently introduced by the IMF.

The conditions also belie claims that provincial governments can give electricity subsidies and also cast doubt on a statement by Prime Minister Shehbaz Sharif, who had encouraged the other three provinces to follow suit. Due to poor governance, higher line losses, higher taxes, charging consumers more than 300 units of monthly consumption and costly promotions, electricity has now become unaffordable for the majority of household consumers.

These factors have pushed prices to Rs64 to Rs76 per unit for residential and commercial consumers. But instead of finding a permanent solution, both the federal and provincial governments of Punjab came up with a two-month subsidy scheme.

The Punjab government has approved a subsidy of Rs 14 per unit in August and September electricity bills for consumers in the province and Islamabad using between 201 and 500 units. The provincial finance minister reportedly said the actual cost of the subsidy was Rs 90 billion, but the Punjab Chief Minister said the cost would be Rs 45 billion.

The sources said the IMF also introduced another condition that would make it binding on all provincial governments not to introduce any policy or action that could be seen as undermining or contradicting any of the commitments made under the programme. 7 billion dollars.

This condition will clip the wings of the four provincial governments on fiscal matters. The provinces had pledged to the IMF that they would sign a National Fiscal Compact by the end of September to take responsibility for some of the spending currently funded by the federal government.

Provincial governments have also pledged to improve the agricultural income tax, property tax and sales tax on services. Now, after the new condition of “not undermining” these commitments was introduced, the provinces could not take unilateral action, the sources said.

Under a third new critical condition, provinces will consult with the finance ministry before amending or adopting measures that could affect or undermine structural benchmarks and key actions agreed with the IMF, the sources said.

The new IMF Pakistan program, which is yet to be approved by the IMF board, covers five budgets and policies of five governments, unlike in the past which did not focus much on provincial policies and budgets.

The Finance Ministry is struggling to get a date for the IMF Executive Committee meeting to approve the $7 billion. This week is described as very critical for securing approvals for new loans and conversions.

The board was earlier scheduled to take up the case on August 30, but was forced to postpone it due to Islamabad’s inability to secure the rollover of $12 billion in loans and arrange $2 billion in new financing.

The finance ministry knocked on the doors of foreign commercial banks again on Monday to get $800 million in new financing.

The IMF has been focusing critically on provincial budgets and has also revised their numbers over the past few weeks, the sources said. They said the IMF observed that Punjab and Sindh’s revenue estimates were exaggerated, which could cause difficulties in meeting the targets of generating cash surpluses.

The federal government is dependent on over 1.24 trillion rupees of provincial cash surpluses to meet the IMF’s key requirement for a primary budget surplus. However, the failure of the Federal Board of Revenue (FBR) to meet its two-month target with a margin of Rs 98 billion, despite receiving advances, would undermine the ability of the provinces to generate the required cash surpluses.

It is not only the Punjab government that has created problems in the smooth approval of the IMF program due to its action on subsidies, but the federal government’s decision to spend Rs 2.8 trillion to reduce up to Rs 6 per unit of electricity prices has also upset the IMF. , the sources said.

Pakistan last week shared a new plan with the IMF to reduce electricity prices by Rs 6 per unit by raising Rs 2.8 trillion. But the plan was based on flimsy assumptions of getting Rs1.4 trillion from the four federal units, including Khyber-Pakhtunkhwa, and raising more commercial loans. So far it has not won the IMF’s approval, the sources said.