Pakistan's power sector circular debt set to rise by PKR 100 billion

The circular debt in Pakistan's power sector is expected to increase by another PKR 100 billion in the current fiscal year, according to a plan shared with the International Monetary Fund (IMF).

The circular debt in the energy sector arises when revenues from consumers fall short of covering the costs of electricity production and distribution.

By June 2025, the circular debt is projected to exceed PKR 2,550 billion. Currently, the debt has already surpassed PKR 2,400 billion.

The IMF has expressed serious concerns about the uncontrolled circular debt and has demanded that it should not exceed PKR 2,500 billion.

The government has assured the IMF that timely tariff adjustments will be made to control the debt.

Despite a plan shared with the IMF, the circular debt was not controlled during the last fiscal year. Under the current fiscal year's conditions, the debt was supposed to be controlled at PKR 2,310 billion.

Failure to control the circular debt according to IMF conditions would violate the loan agreement.

In its last annual report, the State Bank of Pakistan noted that longstanding inefficiencies in the energy sector have resulted in a significant accumulation of circular debt in both power and gas sectors.

To address this, the government has been making aggressive price adjustments in the energy sector since fiscal year 2018-19 (FY19).

The introduction of broad-based increases in gas charges during FY24 amplified energy inflation, pushing urban inflation above rural inflation.

These measures aim to stem the pace of circular debt accumulation, but significant challenges remain. The IMF's concerns highlight the urgent need for effective control measures to stabilize the sector and adhere to international financial agreements.