Circular debt mystery: What is the real number?
If it had not been for the World Bank Pakistan Development Update, the common folk would have continued guessing the circular debt stock and flow since October 2023.
The World Bank report puts the power sector circular debt stook at Rs2.63 trillion as of January end 2024. There is more than one way to look at this number.
On the face of it, this shows zero accumulation in the circular debt arrears stock since October 2023, when the Ministry of Power last publicly provided the figures.
Recall that circular debt stock had reached Rs2.61 trillion as of October end 2023, with a net accumulation of Rs310 billion between July and October 2023, at a rate of Rs75 billion per month of incremental flow.
But the World Bank report, quoting the Ministry itself, says the circular debt stock at Rs2.63 trillion represents an increase of Rs463 billion over June end, 2023. This suggests there has been a revision of base from Rs2.3 trillion to Rs2.17 trillion for June end 2023.
The increment now means the circular debt flow has been accumulating at a monthly rate of Rs66 billion. Unless FY22 year-end numbers have also been revised (less likely), the FY24 to-date accumulation suggests an increase in the rate from last year. In FY23, the circular debt flow had a monthly average of negative Rs80 billion.
Even if one accounts for a rather hefty stock payment in June 2023, the average monthly flow for 11MFY23 was much contained at Rs19 billion, versus the current rate of Rs66 billion.
This is where one finds the World Bank commentary on power sector circular debt rather puzzling. The special section titled “Rising Circular Debt of the Energy Sector” paints a rather appreciative tone of the circular debt situation saying “….the pace of accumulation has slowed since FY23….”. This is clearly not the case as explained above, unless the World Bank is being provided with an entirely different set of numbers than the ones the authorities publish for public consumption.
Not that the World Bank’s prescription to deal with the circular debt in specific and the energy sector, in general, will change, owing to the perception of a “slowed pace of circular debt accumulation” but can lead to indifferent decision-making in the near term. It must be remembered that the World Bank is Pakistan’s biggest partner in the power sector, with a number of ongoing and proposed projects running into tens of billions of dollars.