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IMF wants 4 per cent increase in power tariff before releasing Rs 550m tranche: report

August 20, 2014

The International Monetary Fund (IMF) has tied the approval of the next loan tranche with a 4 per cent power tariff increase, in first signs of the deepening political crisis affecting Pakistan, a media report said on Tuesday.

In order to secure the next loan tranche of over $550 million, Pakistan will now have to announce a 4 per cent increase in power tariffs with effect from September 1, said the report, quoting officials privy to the talks held between Pakistan and the IMF in Dubai on Monday.

The report said that though the proposed increase appears to be marginal in comparison with the hike in power tariff imposed last year, the government believes that Pakistan Tehreek-e-Insaf (PTI) may use it for settling political scores and make it difficult for the government to implement the necessary decision.

According to the report, the timing of the ongoing sit-ins by PTI and Pakistan Awami Tehreek (PAT) has made it difficult for the government to implement the marginal increase of less than 50 paisas per unit in power tariffs.

They revealed that IMF was suspicious that the government may delay the implementation until the political dust settles down in Pakistan. Originally, the decision had to be implemented from July this year.

Interestingly, due to difference over the timing of the increase in tariffs, Pakistan and the IMF could not conclude the ongoing fourth round of talks that held from August 6 to 18 in Dubai.

Discussions will be continuing in the coming days via video conference from Washington D.C with the aim of securing a timely completion of the fourth review.

According to the report, the Washington-based lender wanted the increase to be implemented from July a demand that was rejected by Pakistan.

Subsequently, IMF staff, led by Jeffery Franks, conveyed to Finance Minister Ishaq Dar that the Executive Board will only call a meeting when the government would announce its decision to increase power tariffs.

After increase in power tariffs, the IMF staff would present its report to the Fund’s Executive Board. Upon approval of the report, the international lender will disburse the fifth loan tranche of over $550 million.

The officials said that if the government increases the power tariffs, the IMF Board may meet next month to consider the request to approve the next tranche.

Meanwhile, an official handout said “The IMF is encouraged by the overall progress made in pushing ahead with policies to strengthen macroeconomic stability and reviving investment and growth.”

It added economic indicators were generally improving, with growth continuing to gain momentum, inflation on a downward trajectory, and credit to the private sector rebounding sharply. The IMF said economic growth is expected to rise by 4.3% in the current fiscal compared to a provisional estimate of 4.1% in the last fiscal year.

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Source: Frontier Star (Pakistan)

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