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KARACHI: Pakistan has announced the resolution of Rs1.225 trillion ($4.29 billion) in power sector circular debt, said an official statement on Thursday, a move officials described as a landmark step to restore stability in the country’s troubled energy market.

Federal Power Minister Sardar Awais Ahmed Khan Leghari, addressing a ceremony televised nationally, said the agreement was aimed at breaking the debt cycle that has long weighed on the sector.

“The circular debt has long burdened Pakistan’s energy sector,” he said. “Today, this circular debt scheme is a bold step to break that cycle, restore stability and provide relief to our consumers.”

He added that the restructuring was part of a broader reform plan rather than an isolated measure.

“Previously, only the financial cost of the debt was being serviced, a stopgap that never addressed the real issue,” he added. “Now, a burden of Rs1,225 billion in circular debt is going to be settled without falling on the exchequer or on consumers. This will strengthen the liquidity of the sector.”

The finance ministry said in a statement the plan was executed with the support of 18 commercial banks, coordinated through the Pakistan Banks Association and backed by the State Bank of Pakistan.

The circular debt had become one of the most serious drags on the economy, repeatedly flagged by the International Monetary Fund (IMF) during its engagements with the government.

The announcement of financing comes ahead of the expected arrival of an IMF mission for the second economic performance review under a $7 billion program.

The government said the deal involves restructuring Rs660 billion ($2.31 billion) in existing loans and arranging Rs565 billion ($1.98 billion) in fresh financing to clear overdue payments to power producers.

Repayments will be covered by an already levied surcharge of 3.23 rupees ($0.011) per unit of electricity, avoiding new charges for consumers.

The package also frees up Rs660 billion ($2.31 billion) in sovereign guarantees, which the government said will channel liquidity toward agriculture, small and medium-sized businesses, housing, education and health care.
Prime Minister Shehbaz Sharif joined the ceremony by video link from New York, where he is attending the UN General Assembly.

He called the debt workout a major achievement, adding that the government’s next steps would be privatizing power distribution companies and tackling line losses in the grid.

LAHORE: The government of Punjab on Thursday pledged to build climate-resilient infrastructure and improve early warning systems as the World Bank offered support for post-flood recovery efforts in Pakistan’s most populous province, ravaged by some of the worst monsoon flooding in recent history.

Heavy monsoon rains and floods have killed at least 1,006 people and injured more than 1,000 nationwide since June 26, when this year’s monsoon season began. 

Punjab, the country’s agricultural heartland, has borne the brunt since late August, with over 300 people killed, 4,700 villages submerged, 4.7 million people affected and 1.5 million acres of crops damaged after rivers swelled from torrential downpours and India released water from its dams. Authorities say they have launched the province’s largest-ever search and rescue operation, moving 2.6 million people and 2.1 million animals to safety.

The floods have disrupted the pace of development projects in the province, but a survey is already under way to assess the damage, Punjab’s senior provincial minister Maryam Aurangzeb said after meeting World Bank Country Director Bolorma A. Amgaabazar in Lahore on Thursday. 

 “We will build infrastructure that is resilient to floods and capable of withstanding climate disasters,” the minister was quoted as saying in a statement. “A modern early warning system will be implemented.”

Aurangzeb said the provincial government had mounted an unprecedented disaster response. 

“The largest rescue and relief operation in history was carried out,” she said. “Millions of people and their livestock were moved to safe locations.”

She added that the current administration was the first in Punjab to undertake “record work” on environmental improvement, including eliminating toxic emissions, shifting brick kilns to zigzag technology and taking steps to tackle smog.

According to the statement, World Bank’s Amgaabazar expressed satisfaction over progress on development projects in the province and commended the monitoring system established by the chief minister.

“Social protection programs in Punjab are proving to be effective,” she said. “With the completion of these projects, the Punjab government will also succeed in achieving its development goals.”

Thirteen projects are currently underway in Punjab with World Bank collaboration, while four new projects are under consideration.