IMF links release of $840m with power subsidy

[Naveed Yaseen]

* 2nd round of talks with WB, ADB on circular debt, power sector to start tomorrow
* Islamabad wants power tariff increase in 3 phases

By Sajid Chaudhry

ISLAMABAD: The International Monetary Fund (IMF) on Saturday linked the release of a third instalment of $840 million to Pakistan with Islamabad’s economic performance and a proposed increase in its power tariff.

A Finance Ministry statement issued at the conclusion of the Pak-IMF talks in Istanbul said the Pakistani delegation led by Adviser to Prime Minister on Finance Shaukat Tareen had successfully completed the first round of talks concerning the establishment of a standby facility in Istanbul. The second leg of talks with the World Bank (WB) and the Asian Development Bank (ADB), concerning improvement in the power sector and the country’s circular debt, would start in Islamabad from July 13, it added. According to the statement, the IMF programme review at these official-level talks would be completed after requisite inputs from the WB and the ADB. The WB and the ADB are financing power sector reforms in Pakistan, and therefore their input on the withdrawal of power subsidy and increase in power tariff would be the main point of discussion, sources said.

They said the IMF had expressed willingness to allow a one-time waiver to Pakistan, extending the time limit for withdrawal of the power subsidy until load shedding had been eliminated from the country. However, the IMF authorities said any additional expenditure should be dealt with through rationalisation of pre-approved expenses in the 2009-10 budget to ensure the deficit was maintained at a pre-approved value.

Three-phased: The WB has calculated that Pakistan needs to raise the power tariff by 23 percent, however Islamabad’s economic managers claim a 17.5 percent increase would be sufficient. Pakistani authorities are also proposing a three-phased increase in the power tariff, rather than a one-time boost.

According to rough estimates, the budget deficit would increase by Rs 66 billion if the power tariff were maintained at the present level. Some analysts have claimed the government would increase the power tariff from October, as the power consumption will decrease with the end of summer.

Official sources said the IMF authorities were not concerned about the removal of the carbon surcharge, adding they had been satisfied with the government’s initiatives following the interim order of the Supreme Court. However, they added, the IMF was not satisfied with revenue collection in 2008-09, adding they wanted Islamabad to increase the revenue collection target in the 2009-10 budget.

http://www.dailytimes.com.pk/default.asp...2009_pg1_1