File photo of interim Finance Minister Shamshad Akhtar
Caretaker Finance Minister Shamshad Akhtar on Thursday warned of another hike to the gas tariff in January, stressing this is necessary to curb the accumulation of circular debt.
Addressing a press conference in Islamabad, she said the government’s commitments to the International Monetary Fund (IMF) under the ongoing $3 billion Stand-By Arrangement (SBA) required it to reduce costs in the energy sector and restore efficiency. This, she explained, would be achieved through regular tariff adjustments. “The circular debt of the power and gas sectors has crossed 4 percent of Gross Domestic Product (GDP). Urgent action is needed to bring it down. We have started work in this regard and electricity and gas rates have been adjusted accordingly,” she said, adding efforts were also underway to transfer the management to the private sector and institutionalize the ongoing campaign against power and gas theft.
The confirmation of yet another tariff hike comes less than a month after the interim government approved a massive gas price hike, increasing it up to 173 percent for non-protected domestic consumers; 136.4 percent for commercial consumers; 91 percent for export-oriented industries; and 83 percent for the non-export industry. The government has also massively raised electricity prices over the past year, triggering nationwide protests in August that only subsided with a government crackdown on power theft.
Detailing her discussions with the IMF—which announced it had inked a staff-level agreement with Pakistan on Tuesday–for the first review of the SBA, Akhtar said she had informed the lender of the government’s commitment to imposing taxes on various sectors, including real estate and retail. However, she clarified, no final decision has been taken yet. “Pakistan requires a fresh short-term IMF program, as the country cannot run without it keeping in view the fragile macroeconomic stability,” she explained, making it clear the country would not be letting go of the “begging bowl” anytime soon. She said the next government would likely go for another medium-term program under the Extended Fund Facility (EFF) once the SBA ends.
To a question on the external financing gap, which was highlighted by the IMF, Finance Secretary Imdad Bosal hoped the release of the next tranche of the SBA would unlock $1 billion in funding from multilateral lenders, including the World Bank, Asian Development Bank, Asian Infrastructure Investment Bank, and Islamic Development Bank. He further hoped a reduction in the current account deficit would reduce the external financing requirement. “There is no gap on the external financing front as processing of the program loans from WB and ADB as well as co-financing from AIIB were at advanced stages and would now be approved in December this year,” he claimed, adding Islamabad also Pakistan’s credit ratings to improve after the review concluded this week.
The finance minister said foreign exchange reserves should build-up next month with the release of the IMF’s next tranche, adding this would take the total disbursement under the SBA to $1.9 billion. She said her priority was to immediately start working on the next IMF review so the next government does not face any difficulty, adding, “If we get time, we will also discuss the [new program] as well.”
According to the caretaker, Pakistan must adhere to a market-determined exchange rate, while actively responding to inflation through monetary policy adjustment. The country must also, she said, bring four more state-owned enterprises (SOEs)—National Highway Authority, Pakistan National Shipping Corporation, Pakistan Broadcasting Corporation, Pakistan Post—in line with the financing and governance template of the newly approved SOE law.
To a question on the postponement of a new international bond, Akhtar said the prevailing high policy rate and costly market conditions were not conducive for it. “I have decided to postpone the new bond. It is going to be expensive. Interest rates are very high. So, we cannot go to the international market,” she said, adding that the government would repay the $1 billion that would be maturing in April 2024.
To another query, she said the government expected to collect Rs. 35 billion in additional revenue through a windfall tax on banks—“provided they pay.” She also clarified that it had not yet been determined how much additional taxes would be imposed on the retail and real estate sectors.