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Monday, May 20, 2024

Energy Price Hike Looms as Caretaker Government Navigates IMF Agreement

Finance Minister Shamshad Akhtar underscored the necessity for robust financial reforms to fortify Pakistan's economy.

Caretaker Finance Minister Dr. Shamshad Akhtar declared the caretaker government’s resolve to boost electricity and gas tariffs as part of a broader strategy to address the persistent circular debt issue.

Driven by commitments under the IMF’s Stand-By Agreement Programme (SBA), the government seeks to reduce costs and enhance efficiency in the energy sector.

The power and gas sectors’ circular debt, surpassing 4% of the Gross Domestic Product, demands urgent attention, prompting tariff adjustments. While acknowledging the fragility of macroeconomic stability, Dr. Akhtar hinted at a potential medium-term bailout package from the IMF.

IMF Agreement

Following a staff-level agreement with the IMF, Dr. Akhtar shed light on critical aspects of the deal. Notably, she emphasized the commitment to regular tariff adjustments, revealing plans for a gas price hike in January.

The caretaker government aims to control costs, transfer management to the private sector, and institutionalize campaigns against power and gas theft. Acknowledging the need for further financial reforms, Dr. Akhtar discussed the possibility of another IMF programme to ensure economic stability.

The postponement of a $1.5 billion international bond issuance due to high-interest rates underscores the complexity of navigating global financial markets.

While addressing The Future Summit in Karachi, Dr. Akhtar expressed optimism about unlocking multilateral financial assistance post the release of $700 million from the IMF.

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The caretaker government’s proactive measures, including the Special Investment Facilitation Council (SIFC) initiatives, aim to stabilize the economy and build market confidence.

Dr. Akhtar highlighted the importance of addressing the investment-saving gap, structural weaknesses in state-owned enterprises (SOEs), and fostering financial inclusion.

“The next International Monetary Fund (IMF) programme is very necessary for some time as the economy has returned to stability that was still very fragile. Until we are able to increase exports and domestic resources, we will need another programme,” she said.