AFP/Islamabad
Pakistan’s ongoing fuel shortage that has led to worsening power blackouts is weighing on its credit worthiness and hindering its ability to meet key reform targets laid out by the IMF, ratings agency Moody’s warned yesterday.
The country is currently in the grip of one of its worst power crises in years due to a shortfall in imported oil, with the situation exacerbated Sunday by an attack on a key powerline in restive Baluchistan province.
Moody’s said that increasing energy imports without addressing structural issues that create so-called circular debt “will further strain Pakistan’s budget and balance of payments, a credit negative”.
“Fuel shortages also reflect the strained finances of state-owned distribution companies and the fuel importer, Pakistan State Oil Corp, and are a setback to the sector’s progress on reforms made so far under Pakistan’s financial support programme with the International Monetary Fund.”
The IMF granted a $6.6bn loan to Pakistan in September 2013 on the condition that it carry out extensive economic reforms, particularly in the energy and taxation sectors.
Moody’s, which in July 2014 upgraded Pakistan’s rating outlook from “negative” to “stable” in a boon for the shaky South Asian economy, said that structural reforms had been a “key driver” in its decision last year.
“Circular debt” - brought on by the dual effect of the government setting low electricity prices and customers failing to pay - is at the heart of the crisis.
State utilities lose money, and cannot pay private power generating companies, which in turn cannot pay the oil and gas suppliers, who cut off the supply.
The fuel crisis began last week when Pakistan State Oil was forced to slash imports because banks refused to extend any more credit to the government-owned company, which supplies 80% of the country’s oil.
The shortfall led to long queues of angry motorists at petrol stations, though these have since dissipated as fuel supplies have reached the pumps.
But Moody’s warned that the government of Prime Minister Nawaz Sharif, which made solving the energy crisis a key campaign pledge, had so far failed to offer policy solutions and increasing oil supplies would only add to the fiscal burden.
“The government’s targeted fiscal deficit of 4.5% of GDP in fiscal 2015 from 4.7% in fiscal 2014 is already impeded by delays in implementing electricity tariff adjustments and legal challenges related to tax collections,” it said.
Increasing fuel imports, which currently comprise 35% of total imports would further weigh on Pakistan’s import bill, it added.
‘Fuel crises serious governance failure’
The petrol crisis that rocked parts of Pakistan last week could only have been prevented, if the government had anticipated and taken early measures according to a fact-sheet released yesterday by the Institute for Policy Reforms.
“There is another shortage waiting to happen as the total import of furnace oil has fallen sharply and the likelihood of even more power loadshedding is much higher today,” said the fact-sheet, terming the petrol crisis `a very serious governance failure.’
The crisis had been the consequence of deep structural problems in the energy sector that spilled over to the shortage of petrol, Internews reports from Lahore.
This had been compounded by serious problems of co-ordination among the multitude of ministries and agencies performing different functions within the sector.
The major importer of petroleum products has been the state-owned Pakistan State Oil which imports 66% of petrol with the remainder 34% being imported by other oil marketing companies.
“The crisis could only have been prevented if the government had anticipated (the crisis) and taken early measures to import more petrol, prevent a depletion of stocks and manage demand better.
“Also, it is not surprising that the crisis first manifested itself in the largest province due to the additional factor of closure of CNG stations,” said the IPR fact-sheet.
