Pakistan to hike power tariff by Rs 3.34: IMF

Dunya News

The IMF has projected Pakistans fiscal adjustment at a staggering Rs 1.7 trillion

ISLAMABAD (Dunya News) – The government of Pakistan has promised to increase the price of electricity by Rs 3.34, International Monetary Fund (IMF) said in its fifth review report for Pakistan on Thursday.

According to the report, in the first phase, a notification was issued to raise power tariff by Rs 1.95, while in second phase, the power tariff will increase another Rs 63 paisa. 

The report stated that while the Covid-19 shock temporarily disrupted Pakistan’s progress under the program supported by the IMF’s Extended Fund Facility (EFF), the authorities’ policies have been critical in supporting the economy and saving lives and livelihoods. Aside from health-related containment measures, their response included a temporary fiscal stimulus, large expansion of social safety nets, monetary policy support, and targeted financial initiatives. These measures, supported by sizable emergency financing from the international community, including under an RFI, helped contain the first Covid-19 wave of cases and the impact on the economy. Growth slowed to –0.4 percent in FY 2020 (July–June), but is expected to recover to 1.5 percent in FY 2021. The external position improved, and inflation continued to decelerate through early 2021 despite supply-driven spikes in food prices. However, a second Covid-19 wave is unfolding, triggering exceptionally high uncertainty and downside risks.

The international lender has predicted Pakistan’s Gross Domestic Product (GDP) to grow by 4.0 percent by next fiscal year (2021-22). According to the IMF, the economic growth rate in 2024 could be 5 percent, while this year the rate of inflation will be 8.7 percent. Inflation is likely to rise to 8% in 2022, while the rate of revenue growth in the economy will increase by 0.5% in 2020.

The IMF has projected Pakistan’s fiscal adjustment at a staggering Rs 1.7 trillion (USD 11 billion) in the next two fiscal years, aiming to contain a highly unsustainable public debt at current levels, a route that could address structural economic issues but seems politically unpopular.

The IMF had forecast 1.5% growth in gross domestic product (GDP) for the current fiscal year 2020-21 but then felt it could be higher after good data in January and February, IMF Mission Chief for Pakistan Ernesto Ramirez Rigo said. 

“Now with this third wave, perhaps we might be in a situation where we need to dampen a bit our expectations relative to the upside to the forecast,” he said, adding that Pakistan would also need to adjust its annual budget.

Pakistan has recorded more than 700,000 COVID-19 infections and 15,000 related deaths since the start of the pandemic.

It has seen a sharp rise in daily infections in the last 10 days, and officials said this week there were now more people in intensive care than at any other point during the pandemic.

The IMF’s economic growth forecast is half of the 3% growth projected by Pakistan’s central bank.

Rigo said the IMF was in constant touch with Pakistani authorities about economic targets and fiscal revisions amid the continuing uncertainty caused by the pandemic.

The IMF approved a $500 million disbursement to Pakistan last month for budget support after competing delayed reviews of the country’s $6 billion Extended Fund Facility programme.