Banks confirm readiness to lend PKR 1.275 trillion to resolve circular debt

Pakistani banks have consented to the lead manager, Habib Bank, confirming their willingness to provide pledged funds to help resolve the circular debt crisis.

Banking sector sources revealed that all participating banks have submitted letters of consent, agreeing to inject the required funds to address the PKR 1.275 trillion circular debt.

According to a banking source, the disbursement of funds to companies affected by the circular debt is expected within the next three to eight days.

The plan involves borrowing PKR 1.275 trillion from banks, with a portion of the budget allocated to retiring part of the total debt.

Additionally, the government is considering revised energy purchase agreements with Independent Power Producers (IPPs) and adjusting certain liabilities without direct settlements.

Habib Bank, the lead manager, has secured mandates from all participating banks for the PKR 1.275 trillion package. Of this amount, nearly PKR 658 billion (held by Pakistan Holding Ltd.) will be rescheduled, while approximately PKR 617 billion will be a fresh cash injection.

According to data collected from number of sources, National Bank of Pakistan (NBP) will place the larger portion of funds amounting to PKR 98.5 billion, Habib Bank PKR 81.4 billion, United Bank PKR 68.1 billion, MCB Bank PKR 58.2 billion, Meezan Bank nearly PKR 53.2 billion and Allied Bank PKR 50.4 billion.

The borrowed amount has a six-year term, and the government will service the debt using the existing PKR 2.83 per unit surcharge on electricity bills, which generates approximately PKR 350 billion annually.

In the first year, sources indicate that PKR 135 billion will be allocated for interest payments, while PKR 215 billion will be used for principal repayment.

However, the agreement carries a risk; if the central bank raises interest rates, borrowing costs could increase, potentially affecting the government’s ability to meet principal repayment obligations.