Circular debt

Does the current government have a solution to the problem of circular debt? A reading of the minutes of a meeting chaired by the power minister last week suggests that the approach will not be different from the one followed by the last government. Effectively, the meeting offered a one-step solution: directives to six major Discos to recover arrears by cracking down on theft and stepping up efforts to cut line losses. Does the PTI think it will do better in enforcing the same set of policies inside the same institutions? The crippling circular debt, which has crossed Rs1.2 trillion, is being accumulated at an astonishing pace. It should also be clear that the major issue is not non-payment of arrears by power consumers.

The assumption is that the targets are coming from the IMF, which has asked the government to create Rs140 billion in fiscal space if it is to avoid raising electricity tariffs further. Under pressure over the price hike it has led, the PTI appears keen to explore other ways of brokering an IMF bailout. Discos have been set a Rs83 billion target, which even if it is achieved will only cover half the amount needed. What is more important is to, once again, ask difficult questions about the government’s approach to the economy in a country where the supply of electricity is a political question that has led to the rise and fall of political parties and their governments.

The real question is: how long can the government evade the question of the kind of structural reform Pakistan needs, not the kind of structural reform that a foreign agency dictates? Each successive government finds the task of structural reform so difficult that it would rather cry wolf about ‘non-paying’ electricity consumers, which is a minor problem in the power sector. Discos fulfill their targets by overbilling consumers, a fact which has been admitted by these companies. This is the only way to ‘improve’ billing in the current environment – and effectively that is what the PTI has asked to be done. The real elephant in the room is renegotiating the lucrative rates offered to private power-generation companies, as well as asking tough questions about the IMF’s past role in re-structuring the power sector. The IMF’s directives in the past paved the way for a policy of unbundling and semi-privatisation, which is key to explaining the origin of circular debt. Without reflecting on the larger history of IMF-led structural adjustment, one can say goodbye to finding a solution to the circular debt problem.