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Thursday, May 23, 2024

Funds for CPEC Under Scrutiny by IMF

Pakistan navigates IMF scrutiny over Chinese power plant debt and energy sector reforms amid concerns over budget allocations and circular debt sustainability.

Pakistan’s energy sector is under intense scrutiny as the government reassures the International Monetary Fund (IMF) about its plans not to allocate additional budget for settling dues of Chinese power plants worth Rs493 billion.

The outstanding dues of Chinese power projects under the China-Pakistan Economic Corridor (CPEC) have reached a staggering Rs493 billion, raising concerns about the viability of the 2015 Energy Framework Agreement. The agreement mandates sufficient budget allocation to keep Chinese investors immune from circular debt, yet the government is allocating only Rs48 billion annually, creating a significant deficit.

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The IMF is skeptical about the efficacy of the government’s anti-theft campaign and the military’s involvement in monitoring power distribution companies. Questions arise about the long-term success of these measures, prompting discussions about digital monitoring of power networks and concerns over the involvement of third parties in anti-theft initiatives.

The energy ministry’s faulty policy of using expensive imported fuels has led to a record Rs7 per unit increase in electricity prices in March. IMF scrutiny focuses on the justification for these hikes, especially when exchange rates are stable and global commodity prices remain unchanged.

Pakistan’s energy sector woes contribute significantly to the circular debt buildup, estimated at Rs589 billion annually. The government aims to restrict overall circular debt to Rs2.31 trillion by June, requiring substantial budgetary support and subsidy releases to maintain stability.

Despite efforts to improve bill recovery and reduce losses, challenges persist, with concerns over the sustainability of short-term gains. The IMF’s scrutiny underscores the urgency for Pakistan to address structural issues in its energy sector to ensure long-term financial stability and economic growth.