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- Debt workout executed with support of 18 banks, coordinated through State Bank of Pakistan
- Move comes ahead of IMF review after lender repeatedly flagged circular debt as a major issue
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.