ISLAMABAD: The federal government has sealed a record Rs1.225 trillion financing agreement with a consortium of 18 banks to tackle Pakistan’s mounting power sector circular debt, a burden that has ballooned to nearly Rs2.4 trillion 2.1% of GDP.
Finance Minister Muhammad Aurangzeb called it the largest restructuring deal in the country’s history, saying it will bring relief to the economy, the energy chain, and eventually consumers. The pact was signed in Islamabad and witnessed virtually by Prime Minister Shehbaz Sharif from New York, who hailed it as a “significant milestone” in the government’s reform agenda.
IMF Endorsement and Next Steps
The premier shared that the IMF managing director praised Pakistan’s reform efforts, urging the government to now focus on privatising power distribution companies (DISCOs) and curbing line losses. He said the reforms must move forward with “confidence and firm resolve.”
Structure of the Deal
The package includes Rs659.6 billion restructuring of existing loans and Rs565.4 billion in fresh financing to clear government arrears to power producers. Backed by sovereign guarantees worth Rs660 billion, the arrangement ensures fresh liquidity without adding new burdens on taxpayers. Instead, the existing Rs3.23 per unit debt surcharge will be redirected for repayment.
Loans will be priced at KIBOR minus 90 basis points, nearly 1.5% lower than prevailing rates a concession banks accepted to make the deal viable.
Banking Sector’s Role
The Pakistan Banks’ Association (PBA), in collaboration with the Finance Ministry, Energy Ministry, State Bank of Pakistan, and the Central Power Purchasing Agency, led negotiations. PBA Chairman Zafar Masud said the initiative proves “what can be achieved when the public and private sectors work together with a shared vision,” calling it a step toward nation-building.
Energy Minister’s Remarks
Federal Energy Minister Sardar Awais Ahmad Leghari termed the deal a “landmark initiative,” stressing it is part of a broader reform plan to restore financial health in the energy sector and provide long-term stability and consumer relief.
Why Circular Debt Keeps Rising
Circular debt a chain of unpaid dues across producers, distributors, and suppliers has spiraled due to theft, poor bill recovery, unpaid government subsidies, misaligned billing cycles, and costly capacity payments to idle power plants. These inefficiencies have weakened the energy supply chain, raised electricity costs, and shaken investor confidence.
A Way Forward
Officials said the agreement sets a template for solving structural challenges through innovation and collaboration, positioning the banking sector as a trusted partner in fiscal management. By breaking the logjam in circular debt, the government hopes to stabilise the energy market and unlock financing for agriculture, SMEs, housing, education, and healthcare.
