ECC de­ci­sions

The Pak Banker - - FRONT PAGE -

The Eco­nomic Co­or­di­na­tion Com­mit­tee (ECC) meet­ing, held un­der the chair­man­ship of Fed­eral Fi­nance Min­is­ter Asad Umar, a few days ago sought sug­ges­tions from var­i­ous rel­e­vant de­part­ments on how to deal with the cir­cu­lar debt es­ti­mated at 1178 bil­lion ru­pees, out of which 582 bil­lion ru­pees is parked in the Power Hold­ing Pri­vate Lim­ited (PHPL) un­der Syn­di­cated Term Fi­nance Fa­cil­ity ar­range­ments with in­ter­est added on as tar­iff and paid for by the con­sumers. In July 2018, dur­ing the ten­ure of the caretaker govern­ment, 30 bil­lion ru­pees were added on as cir­cu­lar debt and banks were re­quested to ex­tend a 50 bil­lion ru­pee loan. How­ever, banks re­fused claim­ing they were al­ready over-ex­posed to the sec­tor.

To fur­ther take the en­ergy sup­ply sit­u­a­tion to a crit­i­cal level, Pak­istan State Oil (PSO) is fac­ing the prospect of a de­fault due to re­ceiv­ables of over 300 bil­lion ru­pees that would com­pro­mise its abil­ity to open letters of credit. The de­ci­sion on re­leas­ing funds to PSO was also de­ferred as it was rightly ar­gued that it is closely linked to the cir­cu­lar debt. Re­quest for sug­ges­tions by Asad Umar to be pre­sented in the next ECC meet­ing sched­uled for next week in­di­cates that he is tak­ing a cau­tious ap­proach that can be ap­pre­ci­ated un­der nor­mal cir­cum­stances. How­ever, with a 30 bil­lion ru­pee ad­di­tion in just one month and with a sim­i­lar amount ex­pected to be added onto the cir­cu­lar debt in Au­gust given that there have been no mit­i­gat­ing mea­sures de­signed to deal with the cri­sis to date, these are far from nor­mal cir­cum­stances.

Need­less to say, PTI's Fi­nance Min­is­ter must also take cog­nizance of the fact that if the liq­uid­ity sit­u­a­tion of PSO is acute then im­ports would be im­pacted and con­se­quently the coun­try's pro­duc­tive sec­tors may come to a halt till such a time as the sup­ply of fuel is re­stored. It is there­fore im­per­a­tive for the Fi­nance Min­is­ter to has­ten the process of de­ci­sion-mak­ing with the ob­jec­tive of min­i­miz­ing around one bil­lion ru­pee daily ad­di­tion to the cir­cu­lar debt as well as to en­sure un­in­ter­rupted sup­ply of oil im­ports.

The rea­sons for the cir­cu­lar debt and the po­lit­i­cally chal­leng­ing so­lu­tions to end­ing it have been iden­ti­fied time and again; how­ever, nei­ther the PPP-led coali­tion govern­ment nor the PML-N ad­min­is­tra­tion took up the chal­lenge as they con­sis­tently sub­ju­gated eco­nomic im­per­a­tives to their po­lit­i­cal con­sid­er­a­tions, which ac­counts for the over tril­lion ru­pee debt to­day that per­tains to the power sec­tor. One can only hope that the govern­ment will take the chal­lenge head on and make de­ci­sions that would deal with this men­ace once and for all.

The ECC also di­rected the Ad­vi­sor to the Prime Min­is­ter on In­dus­try and Pro­duc­tion to dis­cuss prices with lo­cal fer­til­izer in­dus­try and as­sess do­mes­tic pro­duc­tion lev­els. He ex­pressed se­ri­ous reser­va­tions at the in­crease in fer­til­izer prices and at­trib­uted the rise to ex­ports, which, he main­tained, are against the in­ter­est of the poor farm­ers. One would urge the govern­ment to also fo­cus on rais­ing yield per hectare of the poor farm­ers, which is sig­nif­i­cantly lower than that of large land­lords.

There is no doubt that fer­til­izer prices were raised by the lo­cal man­u­fac­tur­ers re­cently. While ex­ports may have con­tributed to the rise, yet it is also rel­e­vant to note that 2018-19 bud­get doc­u­ments in­di­cate that the PML-N govern­ment dis­bursed 10.78 bil­lion ru­pee sub­sidy to fer­til­izer man­u­fac­tur­ers in 2017-18, even though no amount was bud­geted for the pur­pose for the year, and did not bud­get any sub­sidy to this sec­tor in the cur­rent fis­cal year which, given that the care­tak­ers had no man­date to al­ter any com­po­nent of the bud­get ap­proved by the Na­tional As­sem­bly, im­plied no sub­sidy re­leases in July and Au­gust. Thus un­til and un­less the PTI ad­min­is­tra­tion re­vis­its the bud­get com­po­nents, it is un­likely that prices will be re­duced.

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