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Interim Government to Raise Gas Tariffs to Curb Circular Debt

SIFC meeting decides to withdraw import restrictions in bid to revive exports

by Staff Report

Photo courtesy PID

The interim government on Friday emphasized that it will uphold all international commitments, as ministers announced an increase in gas tariffs ahead of winter to curtail the circular debt in line with the agreement inked with the International Monetary Fund (IMF) for a $3 billion standby arrangement.

Addressing a press conference after a meeting of the Special Investment Facilitation Council (SIFC)—a civil-military body aimed at reviving the economy—the finance, commerce, power and information ministers said it had been decided to end all remaining restrictions on imports to facilitate exports, job creation and economic activities. The SIFC, which would meet again today (Saturday), also decided to link industries to power stations through wheeling charges.

Interim Information Minister Murtaza Solangi told journalists the SIFC meeting had focused on three key sectors for potential investments, including I.T., mining and agriculture. It had also, he said, discussed measures to contain government expenditures and circular debt, and implement decisions of the previous government for privatization of loss-making state-owned entities, tax reforms, and removal of roadblocks to foreign direct investment.

Clarifying that all major decisions would be announced after the SIFC’s second round on Saturday, he said that Friday’s session had further discussed the threat posed by smuggling. It had been agreed that the government would honor all international agreements, as any deviation could cause irreparable loss to Pakistan, he added.

To a question on whether the economy could afford unrestricted imports while still maintaining foreign exchange reserves, interim Finance Minister Shamshad Akhtar said the government expected inflows of $6 billion from various multilateral donors to shore up reserves. “The situation is reasonably okay for now,” she said.

Interim Power Minister Muhammad Ali, meanwhile, said the SIFC had decided to offer an incremental tariff for industries to increase their electricity consumption in winters to overcome the anticipated rise in capacity payments due to low utilization. He said measures to curb power theft and improve the structure of distribution companies had also been discussed with an ultimate aim to reduce electricity bills.

According to Ali, the gas sector is facing Rs. 350 billion in losses annually, with the circular debt having risen by Rs. 1 trillion over the past four years to Rs. 2.7 trillion today. “Therefore, the gas price has to be rationalized,” he said. “The government would have to revise gas prices across the board because we cannot bear the $3.5 billion loss,” he said.

On the hefty electricity bills, he said the government expected a response from the International Monetary Fund (IMF) on its latest proposed relief measures in a “day or two.”

The interim finance minister, meanwhile, emphasized the “dire” need to revive the economy, saying this required the withdrawal of all import restrictions. She clarified that the government would “closely” monitor foreign exchange reserves and ensure they did not decline to dangerous levels once the import bill soared.

On state-owned entities, she said the interim government was devising a policy to proceed toward their privatization. “What we are trying is to push the debt burden of state-owned enterprises,” she said, adding the current burden was solely on the banking sector. “We will diversify it through the capital market. This will not only increase the depth of the capital market but we will try to float government securities on the PSX so that their maturity is stretched and a common man can invest in government securities. This will hopefully have an impact as liquidity will increase and pricing adjustments will happen as well,” she added.

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