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Pakistan’s circular debt increases by Rs139b

Further increase expected, say experts

SAMAA | - Posted: Dec 3, 2021 | Last Updated: 2 months ago
SAMAA |
Posted: Dec 3, 2021 | Last Updated: 2 months ago

Photo: AFP

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Pakistan's circular debt, during the first half (July - October) of the fiscal year 2021-2022, has increased by Rs139 billion. The overall stocks of the circular debt climbed to Rs2,419 billion on account of flows and stocks till the end of October 2021, it was revealed during a meeting of the Cabinet Committee on Energy on Thursday. It is predicted that the debt will further increase next year and might as well hit the trillion mark. According to an official statement by the Petroleum Division, the government is considering several natural gas supply and policy options for the management of gas supply during winter this year. The cabinet committee has instructed the Petroleum Division to ensure maximum supply during this time alongside the implementation of a demand management plan. It was decided that the priority will be to meet the national requirements of gas for critical industries. After that, “maximum efforts will be made to accommodate the domestic consumers on priority”. In the case of extreme winter, gas curtailed from CNG, cement, general industry (non-export), and captive plants of the export industry would be diverted to the domestic sector. The division added that by the end of this year, circular debt will decrease by Rs529 billion. By June 2022, the debt will fall from Rs2,419 billion to Rs1,890 billion. Reducing circular debt is one of the conditions put forward by the International Monetary Fund. It has demanded a reduction in the circular debt by lowering supply costs and by introducing “more competition” in the power sector. The Fund says “advancing the strategy for the electricity sector reforms, agreed with international partners, is important to bring the sector to financial viability, and tackle its adverse spillovers on the budget, financial sector, and real economy. In this regard, steadfast implementation of the Circular Debt Management Plan (CDMP) will help guide the planned management improvements, cost reductions, timely alignment of tariffs with cost recovery levels, and better targeting of subsidies to the most vulnerable. Substantially lowering supply costs, however, will require a modern electricity policy that: (i) ensures that PPAs do not impose a heavy burden on end-consumers; (ii) tackles the poor and expensive generation mix, including wider use of renewables; and (iii) introduces more competition over the medium term.”
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Pakistan’s circular debt, during the first half (July – October) of the fiscal year 2021-2022, has increased by Rs139 billion.

The overall stocks of the circular debt climbed to Rs2,419 billion on account of flows and stocks till the end of October 2021, it was revealed during a meeting of the Cabinet Committee on Energy on Thursday.

It is predicted that the debt will further increase next year and might as well hit the trillion mark.

According to an official statement by the Petroleum Division, the government is considering several natural gas supply and policy options for the management of gas supply during winter this year.

The cabinet committee has instructed the Petroleum Division to ensure maximum supply during this time alongside the implementation of a demand management plan.

It was decided that the priority will be to meet the national requirements of gas for critical industries. After that, “maximum efforts will be made to accommodate the domestic consumers on priority”. In the case of extreme winter, gas curtailed from CNG, cement, general industry (non-export), and captive plants of the export industry would be diverted to the domestic sector.

The division added that by the end of this year, circular debt will decrease by Rs529 billion. By June 2022, the debt will fall from Rs2,419 billion to Rs1,890 billion.

Reducing circular debt is one of the conditions put forward by the International Monetary Fund. It has demanded a reduction in the circular debt by lowering supply costs and by introducing “more competition” in the power sector.

The Fund says “advancing the strategy for the electricity sector reforms, agreed with international partners, is important to bring the sector to financial viability, and tackle its adverse spillovers on the budget, financial sector, and real economy. In this regard, steadfast implementation of the Circular Debt Management Plan (CDMP) will help guide the planned management improvements, cost reductions, timely alignment of tariffs with cost recovery levels, and better targeting of subsidies to the most vulnerable. Substantially lowering supply costs, however, will require a modern electricity policy that: (i) ensures that PPAs do not impose a heavy burden on end-consumers; (ii) tackles the poor and expensive generation mix, including wider use of renewables; and (iii) introduces more competition over the medium term.”

 
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