ISLAMABAD: The Federal Government has to pay Rs 6 billion every quarter to banks since it has parked Rs 360 billion of circular debt in a vehicle called "Power Holdings", it is reliably learnt. It is a local bank's syndicated facility, guaranteed by Ministry of Finance on behalf of President of Pakistan, with two years of grace period which expired earlier this year.

The syndicated facility has stipulated that if payment is overdue by over 90 days banks would obtain the repayment with interest.

Since banks are required to classify a loan a government guaranteed facility ie Rs 360 billion plus Rs 270 billion totalling Rs 630 billion. Rs 6 billion interest, therefore, is payable every quarter. This is not clearly shown in the budget documents. Perhaps it will be part of bank financing for budgetary needs.

Previous government of PPP in order to show a lower fiscal deficit indicated repayment of circular debt outside the budget for two successive years. Recognising this outstanding liability as a repayable amount, the present PML-N government cleared the dues to the power sector companies and booked the amount on end of June 2013 as a fiscal deficit (over 8 percent of GDP) was placed in the lap, quite rightly, of the previous regime.

There are funded and non-funded liabilities, ie, of the federal government. Non-funded liabilities include "sovereign guarantees" issued by the Ministry of Finance, on behalf of the Government of Pakistan.

Since the "Electricity Power Policy" requires issuance of sovereign guarantees to private power companies as well as international lenders for repayment of dues, Ministry of Finance has been ordered by the Supreme Court to honour these guarantees issued by them. Surprisingly, the sovereign having the power to print rupees is not willing to honour the rupee guarantees. This forced the private power companies (IPPs) to form a group and approach the court where the Government of Pakistan committed to honouring these "guarantees".

Multi-lateral lenders, therefore, ask for details of non-funded liabilities besides total domestic and foreign loans. Around four billion dollars of guarantees have been issued by the Ministry of Finance.

Thus, the circular debt - a difference in receivables and payables of the so-called "Power Holding Company" - has to be repayed by the Government of Pakistan either to banks or IPPs.

Therefore, getting upset on questions about it does not make sense. Finance Minister Muhammad Ishaq Dar is a heart patient who has had 'stents' put undergone an angioplasty operation. He need not to upset when question is asked and instead need to be "up" and "set" and have faith in Allah who did help the country with fall in international price of oil. After all, ups and downs show signs of life. Electro-cardiogram graph shows the heart beat as 'up and down' when the line becomes straight in an ECG-Life ends.

Copyright Business Recorder, 2015