Pakistan Signs Rs1.275 Trillion Deal to Settle Circular Debt
ISLAMABAD – Pakistan has taken a major step to tackle its longstanding circular debt in the power sector, signing a Rs1.275 trillion financing agreement with commercial banks. The signing ceremony was held at the Prime Minister’s Office (PMO) in Islamabad, while Prime Minister Shehbaz Sharif joined virtually from New York, where he is attending the United Nations General Assembly.
Under the agreement, the loan will carry an interest rate of 3-month KIBOR minus 0.9% and will be repaid through the existing electricity surcharge of Rs3.23 per unit.
This marks a strategic change from past policies that focused on maintaining a fixed level of circular debt. The government is now prioritizing a gradual reduction of the debt burden through structured bank financing.
According to the Finance Ministry, the initiative was coordinated by the Prime Minister’s Task Force on Power, working closely with the Ministry of Energy, the State Bank of Pakistan, the Pakistan Banks Association, and 18 partner banks.
The funds will be used to clear outstanding payments owed to Independent Power Producers (IPPs) and the Power Holding Company. Out of the total, Rs683 billion is allocated for the Power Holding Company, while Rs592 billion will go to IPPs.
Repayments will be made in 24 equal quarterly installments, with an annual cap of Rs323 billion and a total ceiling of Rs1.938 trillion to account for any future interest rate fluctuations.
The move is part of broader reforms under Pakistan’s $7 billion IMF program, aimed at reducing circular debt and improving the efficiency of the country’s energy sector.
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