The government is hoping for a final approval from the International Monetary Fund (IMF) to approve the $700 million tranche, as an executive board meeting is scheduled for December 7, according to the News channel on Saturday.
To do so, the government will need to raise quarterly power tariff increases in order to limit the spiraling circular debt.
Electricity Tariff To Increase Due to Commitments With IMF
On Friday, top authorities told the television channel that the electricity firms had requested that NEPRA evaluate the quarterly tariff modifications, which were expected to be resolved over the next several weeks.
The hearing date has not yet been set in stone, but the quarterly tariff adjustment for the first quarter (July-September) was due and would be completed soon.
Gas Prices
Second, the government has decided to modify the gas pricing beginning in January 2024, primarily because the dollar-denominated tariff may rise higher in the next months in order to reduce the circular debt.
The IMF has previously estimated that the energy sector’s circular debt has risen to more than 4% of GDP, or Rs. 4,000 billion.
In response to a question about the possibility of an executive board meeting on December 7 to consider Pakistan’s request for approval of a $700 million tranche under the SBA program, Ministry of Finance spokesman Qamar Abbasi stated that the IMF had not yet officially informed Islamabad of the meeting date.
According to the sources, Pakistan and the IMF have reached an agreement on eight charts, including limiting the budget deficit and aiming for a primary surplus of 0.4% of GDP.
Debt Servicing
For the current fiscal year, debt servicing is expected to be around Rs. 8.3 trillion, compared to a budgetary objective of Rs. 7.3 trillion.
The IMF had estimated that the debt servicing bill may have risen to Rs. 8.56 trillion.
However, with the likelihood of switching to longer maturity T-bills and floating bonds on lower policy rates, the entire debt servicing bill was forecast to fall to roughly Rs. 8.3 trillion.
The State Bank’s Monetary Policy Committee (MPC) is slated to convene on December 12, amid forecasts of declining trends.
Issuance of Treasury Bonds
The last auctions conducted by the Ministry of Finance and the SBP also prompted hopes that the rate on treasury bills would range around 21.5%, indicating that the market was also expecting downward trends in light of the lower rates accepted in the most recent auctions this week.
Pakistan is also nervously awaiting the US Fed Reserves meeting, as the policy rate is currently in the region of 5.25 to 5.50%, the highest in the last 22 years, causing Islamabad’s economic managers to abandon their intention to launch an international bond to raise $1.5 billion.
If the US policy rate is cut in the coming months, Islamabad may consider issuing the ESG bond in the second half of the current fiscal year.
All of these developments will have an impact on Pakistan’s budget, as the reduction in global interest rates as well as the domestic market will help reduce the cost of debt servicing in Pakistan during the current fiscal year.
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