The government is contemplating increasing the electricity tariff by Rs.3.3 per unit by mid-January, additional taxation of up to Rs. 200 billion,and a potential increase in the discount rate. These measures are likely tobe introduced as a mini-budget before resuming talks with the InternationalMonetary Fund, reported a national daily.

These measures are likely to be taken in efforts of restoring the $6billion IMF program, which has been halted since February 2020.——————————

The IMF mission is due for talks in January 2021, and before itssuspension, one of the demands made by the mission was an increase in theelectricity tariff. IMF wants the government to charge consumers the fullcost of electricity generation to contain the circular debt that hasswollen to Rs. 2.300 trillion.

Additionally, the IMF mission also expects Pakistan to achieve the revenuecollection target of Rs. 4.9 trillion by increasing taxation to the tune ofRs. 180-200 billion in the current fiscal year. The disagreement betweenthe IMF and Pakistani government over these additional tax measures andpower tariff changes became the reason for the suspension of the program inthe first place.

Given the upcoming gigantic debt servicing payments, Pakistan does not havemany options other than reviving the IMF program, which means that suchtough measures will now have to be taken. IMF wants the government to getthe Electric Power Act bill in the National Assembly passed, enabling it topass on the cost of inefficiency and theft to the consumers through theimposition of surcharges.——————————

——————————

The bill was introduced back in June 2020, but it is yet to be approved.The Prime Minister has expressed plans to hold a presser or address thenation to take the masses into confidence, before enacting these measures,about the rise in the tariff. This would likely be done once NationalElectric Power Regulatory Authority (NEPRA) formally determines the newbase tariff, which is likely to take place by mid-January 2021, andretrospectively put into effect from January 1, 2021.

The tariff hike, however, will take place in a phased manner, but even withthe increase of Rs. 3.3 per unit in the first phase, the circular debt willlower down by a massive Rs. 350 billion within one year.