ISLAMABAD: Amid a rising fiscal deficit because of heavy fuel and energy subsidies, Pakistan on Tuesday assured the World Bank (WB) it would push through reforms in the upcoming budget for fiscal consolidation to build economic resilience.

The assurance was given by Minister of Finance Miftah Ismail to a WB delegation led by Hartwig Schafer, Vice President, South Asia Region, at the conclusion of a two-day visit during which they held meetings with Prime Minister Shehbaz Sharif and ministers for planning and energy.

Critical of the tariff subsidies at the rate of Rs5 per unit announced by former prime minister Imran Khan on February 28 in the middle of a political crisis, WB has been asking the authorities to withdraw or phase out the fresh subsidy package because the circular debt was estimated to increase by more than Rs500 billion during the current fiscal year.

Mr Schafer asked the government to “stay the course on key structural reforms to improve power sector performance and on economic reforms including revenue mobilisation, fiscal consolidation, and debt management,” the WB said, adding that emphasis was on key economic and fiscal reforms as well as power sector reforms, including reducing power generation costs, decarbonising the energy mix, better targeting subsidies, and reducing circular debt to help Pakistan accelerate recovery from the pandemic, better cope with the ongoing global price shocks, and achieve higher economic growth.

“Maintaining the momentum and accelerating the pace of these reforms will be critical for Pakistan’s green, resilient, and inclusive development,” he was quoted as telling the authorities.

Under the two WB loan programmes, the authorities had prepared a circular debt reduction plan that led to a reduction in the power sector debt from Rs538bn in fiscal year 2021 to about Rs295bn in the first eight months of the current fiscal year. The February 28 relief package, however, put a sudden break to the circular debt reduction plan, resulting in an estimated additional stockpile of more than Rs500bn this year.

Published in Dawn, May 11th, 2022