The country’s circular debt has risen to Rs 5.73 trillion, which is Rs 1.5 trillion more than what was told the IMF two months ago, when the country’s $b billion Standby Arrangement went through its first review successfully. This rise of Rs 1.5 trillion has not been the result of fudged book-keeping but because of the natural rise of the imbalance. This circular debt has been behind the IMf’s demand, met by the PDM government as well as the present caretakers, to increase power and gas tariffs to the point where consumers are screaming. Clearly, since the Rs 8 increase in power tariffs in the current fiscal, and the levying of a Rs 465 to Rs 1500 surcharge on gas bills, the circular debt has not reduced, hiking tariffs has not worked.
The first debt that started the cycle was that owed by government departments, which refused to pay arrears, after they had exhausted their budgetary allocations. The power and gas companies would not disconnect them, nor would the government increase their budgets. The debt piles up, as the oil and gas companies import oil and gas on borrowed money.
The taxpayer has to shoulder the burden, which is now 5.4 percent of the GDP. Even at 4 percent, the IMF statement on November 15 said immediate action was critical. Let alone government finances, the circular debt is now distorting the entire national economy. The tariff hikes have proved not even to be a band aid over the problem, and gave the impression that the IMF had no more clue to the problem than the government. That may have been why it was so insistent on the government developing its own plan to settle the debt. Perhaps most worrisome, Chinese banks have been setting as a condition of further loans the reducing the circular debt owed to Chinese companies. A $600 million loan has been made conditional on settling Rs 400 billion owed to Chinese IPPs.
The caretakers have said they have a plan to reduce the circular bet by Rs 1.268 trillion, or 22 percent. It involves waiving Rs 122 billion in arrears due to late payment. The figures alone make it seem that the plan does not solve the problem. Most importantly, no solution has been proposed to the immediate problem of preventing the debt from increasing. Until that is done, we can only lament circular debt until the final collapse, and the lights going out.
