The federal cabinet meeting on Tuesday failed to declare immediate relief for inflation-hit masses and chose to seek an International Monetary Fund (IMF) endorsement before endorsing any proposal, amid ongoing nationwide protests against high electricity prices.
According to the source, the cabinet meeting, chaired by interim Prime Minister Anwaar-ul-Haq Kakar, addressed measures to provide relief to customers consuming up to 400 units per month in August and September.
Following the cabinet meeting, interim Information Minister Murtaza Solangi stated that the government would announce its decision after consulting with the IMF within the following few hours.
“Caretaker Finance Minister Dr. Shamshad Akhtar is in contact with IMF officials in this regard,” his office stated in a statement Tuesday night, alluding to his interview with a private television programme.
According to the minister, several recommendations came up for consideration before the cabinet, and some of them were adopted. “It is mandatory to consult with the IMF on some decisions,” Solangi remarked.
He stated that the caretaker cabinet had resolved to take steps to provide relief to electricity users while maintaining the primary surplus and circular debt.
According to official sources, the federal cabinet meeting lasted almost two hours and approved some of the recommendations brought to the forum by the Power Division.
According to the decision made by the federal cabinet, there will be no reduction in electricity tariffs, but users using up to 400 units per month in August and September would be offered relief in the form of adjustments over the next six months.
According to them, the government expressed grave worry about nationwide protests against electricity bills. At the same time, it was noted that the government’s hands were tied as a result of the IMF agreement.
The Power Division also updated the federal cabinet on free electricity provided to VVIPs, VIPs, and power distribution company employees and officers.
It was resolved to investigate the matter while keeping in mind that no judgement should be made hastily and to inform the public of the facts.
It should be noted that the interim prime minister himself had given the authorities involved 48 hours to come up with recommendations for providing relief to power consumers.
On Tuesday, there were protests around the country for the fifth day in a row, with protestors openly burning invoices and refusing to pay them.
The decision was made in response to a difficult fiscal position as a result of meeting the lender’s main deficit and circular debt targets.
There is no way to reduce the staggered taxes without deviating from the primary surplus agreed upon with the IMF.
The government will have to get Fund staff approval to collect August and September dues from consumers in stages, using up to 400 units.
Second, the government will be required to pass on Quarterly Tariff Adjustments (QTAs) ranging from Rs4 to Rs6 per unit, which was also planned to be staggered over a four to six-month period. It is not possible to present a package of ideas to the IMF without the approval of the cabinet. The IMF staff will now be approached for approval of the monthly relief from the inflated bills.
“The rupee’s massive devaluation against the dollar has multiplied capacity repayments, which have now reached Rs2.2 trillion.” Second, the rise in the policy rate has increased the cost of borrowing for local power producers. We have no choice but to stagger the increased electricity price for customers utilising up to 400 units only. There will be no assistance for people who use more than 400 units,” top official sources affirmed to The News in background conversations following the cabinet meeting presided over by caretaker Prime Minister Anwaar-ul-Haq Kakar.
Another prominent figure involved in the electricity sector stated that because Pakistan has the lowest domestic savings rate in South Asia, it must rely on foreign savings, therefore independent power producers (IPPs) attracted foreign savings to invest in the power business.
Initially, the currency rate was stabilised using unsustainable means, and finally, a scarcity of dollars revealed the exchange rate’s fragility. The rupee-dollar exchange has already crossed the Rs300 mark in the interbank market, while the open market rate is substantially higher.
“If all other factors of power had remained constant, even the devaluation of the exchange rate would have caused a two-third hike in electricity prices,” the official said, adding that the government had to rely on foreign savings because the country could not raise its tax-to-GDP ratio, so fiscal space to build our power plants with domestic resources was not available.
Foreign investors must now repatriate profits and dividends, putting pressure on the currency.
Other power sector losses, he added, remained an issue for the cash-strapped power sector, which, according to approximate estimates, produced yearly losses of Rs900 billion.
As there are no other options available to the government at this time, the IMF programme provides two pathways for providing fiscal incentives to the electricity sector: increasing the primary deficit or allowing a jump in the circular debt.
The cabinet-approved plans will now be presented to the IMF on Tuesday night or within the next week, and if approved, the government will publish its relief package for electricity consumers.
