In a significant financial reform, the Pakistani government is preparing to reduce the circular debt in the power sector to Rs561 billion, fulfilling a key agreement with the International Monetary Fund (IMF). This move is seen as a step toward stabilizing the energy sector and restoring investor confidence.
The current circular debt stands at Rs2.381 trillion. To bring this figure down, the Central Power Purchase Agency (CPPA-G) will utilize a loan of Rs1,275 billion, obtained from 18 commercial banks. This amount will help clear PHL loans of Rs683 billion and Rs569 billion in interest-bearing arrears owed to power producers.
Officials confirmed that the payments are expected to be disbursed within the week. After this, the updated circular debt figure of Rs561 billion will be published on the official Power Division website.
This effort is part of a broader reform plan led by a Task Force on Power Sector, including Adviser to the PM Muhammad Ali and representatives from SECP, Nepra, and CPPA-G. The task force successfully negotiated the waiver of Rs387 billion in late payment interest from Independent Power Producers (IPPs). Additionally, Rs254 billion has been cleared through budgeted subsidies.
Despite this progress, the remaining Rs561 billion in circular debt, comprising Rs224 billion in non-interest-bearing and Rs337 billion in interest-bearing liabilities, will require further reforms and efficiency improvements within electricity distribution companies (Discos).
To repay the Rs1,275 billion loan, the government will continue collecting the existing Debt Service Surcharge (DSS) of Rs3.23 per unit from electricity bills. This surcharge, already in place, will now remain for six more years to ensure full repayment without imposing a new burden on consumers. The IMF has also required the government to remove the 10% cap on this surcharge as part of agreed structural benchmarks.
This circular debt reduction Pakistan effort is seen as a critical step in meeting IMF targets and improving the country’s financial health.
Moody’s also highlighted improved funding prospects for Pakistan following the IMF agreement, read the full report here.
