The inflation has reached to record-high level in Pakistan as the incumbent government is trying to appease IMF for the revival of the stalled loan program and recenlty the ECC has approved new power tariffs. With the special financing surcharge instated on average power tariffs and additional cost adjustments, a major IMF condition has been fulfilled and the measure aims to generate about Rs 335 billion from consumers and contain circular debt flow. However, this measure relies on adjustment for cost increases from power sector consumers and the withdrawal of special subsidies also means that it is another burden to bear for the public.
At the moment, installing IMF measures to avoid sovereign default is the only way forward and so, such regressive policies are unavoidable. Experts have already predicted that this move means a significant addition to real inflation numbers as power is a significant piece of the consumer price pie.
Even now, the structure of the adjustment aims to partially insulate consumers in the domestic sector with higher consumption bracket consumers paying more. However, further relief is not possible for those within the country.
Hopefully, the measure is enough to pacify the IMF as the government seems to be scrambling to fulfill the remainder and more difficult actions of the Programme. Discontinuation of power subsidies was a popular demand from the Fund, from earlier when the Memorandum of Economic and Financial Policies (MEFP) was first received. Though the decision was widely unpopular, the Programme has been fixating on Pakistan’s poor-performing power sector and its extremely high circular debt. This export subsidy being withdrawn from export-oriented industries comes from the conviction to not only eliminate circular debt but also prevent its long-term accumulation in the future.
The irony is that despite bowing down to all the IMF demands, the staff-level agreement is being delayed. Recently it emerged that the government has decided to take US help for the revival of the loan program. If this was the case, the govt should have contacted the US earlier so that tough conditions of the IMF could have been relaxed. Well only time will tell when we are going to hear good news from the fund as there is still alot of fog on the issue.
