The spiralling circular debt has become a headache for PTI-led federal government and is a ticking time bomb that can explode any time, destroying the already disturbed economic growth cycle. As of January 2021, the total circular debt of Pakistan is ₨2,306 billion.
The federal government recently raised the power tariff by Rs1.95 per unit — in fulfillment of a condition for revival of the $6 billion IMF loan programme — expecting that the accumulation of the circular debt will slow down significantly. However, despite burdening the masses the circular debt witnessed a Rs564 rise in this tricky debt.
Circular debt remains the biggest of the seven challenges facing the power sector in the country. It is a public debt that is a cascade of unpaid government subsidies, which results in accumulation of debt on distribution companies. When this happens, the distribution companies can’t pay independent power producers, who in return, are unable to pay fuel-providing companies thus creating the debt effects as prevalent in the country.
On assuming power, the PTI government had vowed to address the third-biggest fiscal hole in the economy through efficiency improvements. It had announced coming down hard on defaulters and power thieves to improve recovery of bills. On the contrary, raising the power tariff appears to be the only trick available with the government’s financial wizards to deal with the monstrous debt.
The question at this point is, how exactly did Pakistan get here? The issue is one of the bad deals with IPPs, and can be traced back to the second government of the late Benazir Bhutto, which made a deal with the IPPs that was very expensive per unit for consumers.
The Musharraf regime then made it worse by not allowing the public sector to produce cost-effective hydroelectricity. Whereas, the PML-N government of Nawaz Sharif also depended on IPPs, producing from oil, gas, and coal with inefficient and old technology. After all of these mistakes piling up, the PTI government only added on to them in their own fashion.
The line losses from electricity proliferation and stealing are great. 70 percent of electricity is stolen by the government itself and 25 percent by businesses of parliamentarians. After all, it is the people that have to bear the brunt of wrong power policies and gross mismanagement of the sector in the form of electricity rates. There is an urgent need to address the issue of circular debt.
The government needs to act now, lest we lose all options and fall into the grip of stagflation. Prime Minister of Pakistan should take step in this regard and asked their ministers to pay their electricity charges. The national stakeholders must focus on tools and means to provide reliable, efficient, and affordable energy prices to their consumers.