Danger sig­nals

The Pak Banker - - FRONT PAGE -

The lat­est SBP fig­ures show that Pak­istan's fis­cal deficit in the first 11 months of the out­go­ing fis­cal year ex­ceeded the bud­geted 4.1 per cent tar­get. Care­taker Fi­nance Min­is­ter Dr Shamshad Akhtar has re­ported the 11-month deficit at 6.1pc of GDP and pub­lic debt at 70pc of GDP. The deficit may reach close to 7pc at the end of the year ow­ing to lower than com­mit­ted cash sur­pluses from prov­inces, rev­enue short­fall by the Fed­eral Board of Rev­enue (FBR), higher than es­ti­mated debt ser­vic­ing and static run­ning ex­pen­di­tures of the gov­ern­ment.This is de­spite the fact the pub­lic sec­tor devel­op­ment pro­gramme (PSDP) ex­pen­di­ture has been con­tained at Rs752bn as of June 22, 2018 against a bud­get tar­get of Rs1,001bn for the full year.

Mean­while, the ex­change rate keeps on de­te­ri­o­rat­ing, adding to the debt bur­den and a record $16bn cur­rent ac­count deficit (al­most 6pc of GDP), while the fis­cal and mon­e­tary sec­tor is fast en­ter­ing the danger zone. The cur­rent year deficit is close to the level wit­nessed in 2013 if a fresh power sec­tor cir­cu­lar debt stock of Rs547 bil­lion is also taken into ac­count be­sides al­most Rs500bn parked in Power Hold­ing Com­pany Lim­ited and be­ing ser­viced through sur­charges in con­sumer tar­iff.The fresh cir­cu­lar debt stock is more crit­i­cal given the fact that re­ceiv­ables of the distribution com­pa­nies have crossed Rs779bn as of June 4, 2018 which are mostly un­re­cov­er­able and have to be writ­ten off. These so called "one-off" write-offs have been the most com­mon fea­ture of the power sec­tor and the fed­eral bud­get for al­most 15 years now, with the amount mak­ing fresh records each time..

The Power Di­vi­sion on the other hand has re­ported in­creas­ing power losses and re­ceiv­ables, and fewer re­cov­er­ies, at­tribut­ing most of the sec­tor's ills to the ab­sence of po­lit­i­cal will in ad­dress­ing the chronic cri­sis. As of June 4, power sec­tor re­ceiv­ables crossed Rs779bn, up 32pc from Rs589bn in 2015.Sig­nif­i­cantly, pri­vate sec­tor re­ceiv­ables have surged by 46pc to Rs633bn last week from Rs434bn at end-June 2015. The in­crease ap­peared strange in view of dis­con­nec­tions by distribution com­pa­nies on de­fault be­yond two months by com­mon con­sumers. Pri­vate re­ceiv­ables in­creased by 8pc to Rs469bn in 2016, fol­lowed by 18.3pc in­crease to Rs555bn in 2017 and an­other 14pc rise to Rs633bn in 2018. The re­ceiv­ables against dis­con­nected de­fault­ers stood at Rs99bn.

Re­port­edly, pub­lic sec­tor re­ceiv­ables have again gone past Rs146bn com­pared to Rs156bn at end-June 2015. In fact, pub­lic sec­tor re­ceiv­ables have also main­tained a steady jour­ney, in­creas­ing by 8.33pc to Rs169bn in 2016 and then fall­ing 32pc to Rs115bn in 2017 as part of a mas­sive write off of Rs50bn al­lowed to Sindh gov­ern­ment con­sumers in 2016.There are now in­di­ca­tions that even Chi­nese in­vest­ments in a few ma­jor en­ergy trans­ac­tions are in jeop­ardy ow­ing mainly to poor fi­nan­cials of the power sec­tor. This comes at a time when over­all for­eign di­rect in­vest­ment has shown slightly lower in­flows in first 11 months of the cur­rent year.

Ac­cord­ing to the chief of the Hub Power Com­pany, his com­pany was work­ing on $3.5bn en­ergy projects un­der China-Pak­istan Eco­nomic Cor­ri­dor (CPEC) but their fi­nan­cial clo­sure had been stopped due to 'bad mouthing' in Chi­nese mar­ket by ex­ist­ing in­vestors of Sahi­wal Coal project over non-pay­ments.He stated that con­sor­tiums would fall apart un­less sal­vaged by the care­taker gov­ern­ment that had been re­quested to in­ter­vene. It is also ap­pre­hended that Shang­hai Elec­tric Lim­ited (SEL) may walk away from tak­ing over K-Elec­tric from the Abraaj Group be­cause of lack of clar­ity and slow progress on tar­iff and se­cu­rity clear­ance. This will be a se­vere jolt to the sec­tor and the econ­omy as a whole.

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