Circular debt

When the PML-N government took charge of affairs in 2013, it made a lot of noise over the alarming levels of circular debt that had been accumulated in the power sector. That in itself was not incorrect since the preceding PPP government had left the incoming government with a Rs480 billion mess to deal with. One of the first tasks of the new government was to clear all the circular debt – using, for some, controversial measures. At the time, the government had claimed that would be the last we would see of the country’s circular debt problems. Most observers, though, had noted that the government was getting ahead of itself as the required power sector reforms had not taken place. But no one could have predicted that the circular debt levels would hit the same levels once again. According to recent reports, Pakistan’s circular debt is back to around Rs440 billion. This means that the PML-N government, if it continues in this trajectory, is set to leave a larger circular debt burden for the next incumbent government than the much criticised PPP government had.

The issue of circular debt has once again brought into the limelight the PML-N’s economic reforms, which seem to have been more about optics than substance. A parliamentary body is looking into the initial move – made in 2013 – to clear Rs480 worth of circular debt in one go. Around Rs335 billion of the debt was parked in Power Holding Company Limited (PHCL), which the government had pledged to clear to the IMF. Moreover, the accountant general found that Rs165 billion of the debt payments made by the government could have been avoided. The government bypassed the AGP’s offices and did not perform a simple pre-audit function, a task that would have taken just three days. The current high level of circular debt raises the prospect of another hard summer for power consumers around the country – and makes the likelihood of the government fulfilling its promise of ending loadshedding by 2018 even more unlikely. Circular debt was the primary reason the PPP was unable to ensure regular power supply during its tenure. The PML-N does not appear to have another magic wand to wish the piling debt away. It is also clear that the reform of the payment structure, agreed upon in the Circular Debt Management Plan of 2015, has not been adhered to. The ADB has recently noted that Pakistan has one of the highest levels of monthly power outages and loadshedding in Asia. One thing is clear: we should brace ourselves for a very hot summer.