IMF demands reduction in Pakistan's circular debt

ISLAMABAD: The International Monetary Fund (IMF) has called on Pakistan to reduce its circular debt as a special session was held on the circular debt management plan during the ongoing talks between the two parties, ARY News reported citing sources.

Pakistan told the IMF delegation it is working on a plan to reduce the circular debt by Rs 1250 billion, with Rs. 300 billion potentially being settled, the sources said.

“Pakistan plans to borrow Rs 1,250 billion from banks to reduce circular debt. The plan also proposes waiving late payment surcharges of up to Rs. 600 billion.”

To pay off the debt, a surcharge of Rs. 2.8 per unit may be imposed on consumers. According to sources, the government is working on a comprehensive plan to manage the circular debt, which will be finalised in upcoming policy negotiations.

The sources revealed that the previous six months saw a reduction of Rs. 10 billion in stocks, while the next six months are expected to see an increase in electricity demand, which may lead to a rise in circular debt.

The government had anticipated an increase of Rs. 350 billion in circular debt for the current fiscal year.

Earlier on Thursday, the federal government has abandoned plans to introduce a mini-budget for FY 2024-25, opting instead for an alternative plan to address the Rs. 605 billion shortfall.

The government was anticipated to bring the mini-budget but now it opted other option. A key aspect of the plan involves the swift resolution of tax-related cases pending in various courts.

Prime Minister (PM) Shehbaz Sharif has assured full cooperation in this regard, while Chief Justice of Pakistan Yahya Afridi has also approved the request to expedite the hearing of tax-related cases.

According to sources, the IMF has also been briefed on the plan. A crucial hearing on the matter is scheduled to take place in the Supreme Court on March 10.