Overreliance on IMF hinders Pakistan's power sector reforms

March 01, 2024

Muneeb ur Rehman

The government acknowledges the existing loopholes in the country's power sector and consistently formulates reform strategies. Nevertheless, reliance on the IMF limits its ability to autonomously implement the power sector reforms. Talking to WealthPK, Saifullah Chattha, former vice chairman of Nepra (National Electric Power Regulatory Authority) says since Pakistan is under the IMF program, any step or measure necessitates its approval. There are several reform agendas aligned with the domestic economic framework that are pending, seeking approval from the International Monetary Fund (IMF). Most recently, the energy ministry formulated a "Tariff Rationalization and Circular Debt Management Plan" that aims to reduce inefficiencies in the power sector. However, he points out that the IMF is consistently showing concerns over the proposed plan. At the onset of the present fiscal year, circular debt increased to Rs2.309 trillion, marking a rise from Rs2.252 trillion recorded in the Fiscal Year 2021-22. During the Fiscal Year 2022-23, a recovery rate of 92.4% resulted in an additional accrual of Rs236 billion in the circular debt. In his view, the IMF endorses a one-size-fits-all solution, predominantly involving passing the burden on to the end consumers.

The organization offers limited policy alternatives for Pakistan. The persistently high poverty rate, however, complicates the feasibility of their recommendation. Underscoring the importance of autonomy for reforming the power sector, he says, "Ensuring the energy sector's sustainability is essential for Pakistan's economic recovery and fiscal stability. The IMF needs to provide considerable space for the government so that it can focus on reducing the high cost of electricity, limiting theft, and regulating Discos (distribution companies)." Similarly, Shah Jahan, Chief Executive Officer of the Alternative Energy Development Board, views the IMF timelines and targets as anathema to the policy reforms. "The IMF programs come with specific timelines and performance targets. The governments must adhere to these deadlines and benchmarks, leaving less room for flexibility in implementing the power sector reforms at their own pace," he says. Pakistan is presently engaged in a $3-billion Stand-By Arrangement with the IMF, having already obtained two installments under the program. Shah Jehan's suggestion for the government is to enter into talks with the IMF, seeking autonomy on power sector reforms. In a nutshell, Pakistan's dependence on the IMF limits its ability to autonomously reform the power sector. Its influence constrains the country's independent decision-making in addressing power sector issues.

INP: Credit: INP-WealthPk