Islamabad: The government has reached a loan deal worth Rs 12.5 trillion at an interest rate of less than 11% with commercial banks to eliminate circular debt.
The new deal is cheaper by 3 to 5 percent, the loan of Rs 12.5 trillion is being taken in the accounts of the Central Power Purchasing Agency, it will not be part of the overall government debt.
In the past, the government has been paying 14 percent interest on the loans taken from banks to repay circular debt, while the government is paying up to 16 percent interest for non-payment to IPPs on time.
The understanding with the IMF for the new deal came after sharing the features of the plan for its approval.
During the talks, the IMF team was told that the implementation of the new plan will eliminate the circular debt, but the new circular debt will continue for the next three to four years.
The aforementioned deal is being described as a major success of the current government, which took several steps to reduce the cost of electricity and remove shortcomings with the help of the army.
The work on the new deal was done jointly by the Civil-Military Task Force for Structural Restructuring for the Power Sector, the details of which were finalized by the Ministry of Finance in the presence of the civil-military leadership.
Sources said that according to the deal, commercial banks have to provide a total loan of Rs 12.5 trillion at one percent less than the current interbank rate, which is around 10.8 percent. The government tried to get a loan at 8 percent, but the banks did not agree.
To eliminate the total circular debt of Rs 24 trillion, the principal amount of Rs 15 trillion has to be cleared. The government will clear Rs 15 trillion from new loans and budget support of Rs 250 billion.
Sources said that in exchange for full payments, the government will negotiate with the IPPs to waive the interest due of Rs272 billion. Of the Rs1.25 trillion loan, Rs683 billion will be cleared by Power Holding Limited, which was previously taken at 2 percent above the keybor rate of banks.
Sources said that of the total circular debt, Rs280 billion will be paid to nuclear power plants, Rs220 billion to LNG power plants, and five billion to government power plants, while coal-fired plants will also have to be paid.
The government will repay the Rs1.25 trillion loan in six years, while its service charges are already being collected from consumers in the form of a surcharge of Rs2.83 per unit, generating Rs350 billion annually.
In the first year of the deal, the government will pay Rs135 billion in interest on the new loan, while the remaining Rs215 billion will be used to repay the principal amount of the loan. Sources said that the interest rate on the new loan will also increase as the State Bank of Pakistan increases its policy rate.
Read more:https://timelinenews.com.pk/strict-fiscal-measures-needed-for-1-1-billion-imf-tranche/
