The International Monetary Fund (IMF) has advised Pakistan to take concrete steps to reduce its circular debt, as both sides conducted a special session on debt management during ongoing negotiations.
Pakistan’s Plan to Reduce Circular Debt
According to insider reports, Pakistani officials informed the IMF delegation that a strategy is in place to lower circular debt by Rs. 1,250 billion, with Rs. 300 billion expected to be settled. As part of the plan, the government intends to secure Rs. 1,250 billion in bank loans while also waiving late payment surcharges of up to Rs. 600 billion.
To further address the issue, authorities are considering introducing a surcharge of Rs. 2.8 per unit on electricity consumers. Officials are in the final stages of formulating a comprehensive strategy to manage circular debt, which will be reviewed in upcoming policy discussions.
In the last six months, Pakistan’s circular debt has decreased by Rs. 10 billion. However, with electricity consumption anticipated to increase in the next half-year, the debt burden may rise. The government had initially projected a Rs. 350 billion increase in circular debt for the current fiscal year.
Government’s Alternative to a Mini-Budget
Separately, the federal government has decided against introducing a mini-budget for FY 2024-25 and has instead opted for an alternative strategy to manage a Rs. 605 billion revenue shortfall. A major component of this plan involves accelerating the resolution of pending tax-related cases to recover funds.
Prime Minister Shehbaz Sharif has extended full support for the initiative, while Chief Justice of Pakistan Yahya Afridi has approved the request to fast-track hearings of tax disputes. The IMF has been briefed on this approach, with a critical Supreme Court hearing scheduled for March 10 to discuss the matter.
