Pakistan's power sector circular debt rises by PKR 61 billion after budget cut

Pakistan’s power sector circular debt increased by PKR 61 billion in fiscal year 2025-26 after the government reduced budgetary support by PKR 98 billion, offsetting gains from ongoing sector reforms that continued to improve the industry's financial performance, the Power Division said.

According to the ministry, the government initially allocated PKR 893 billion for the power sector in the FY2025-26 budget, but later reduced the allocation by PKR 98 billion. Had the full amount been released, circular debt would have declined further to PKR 1.577 trillion, the ministry said. Instead, the funding cut led to a PKR 61 billion increase in circular debt during the fiscal year.

The Power Division said the reduction in budgetary support was a one-time fiscal measure and did not reflect any deterioration in the sector’s operational performance.

Despite the increase in circular debt, the ministry said reforms continued to strengthen key financial indicators. Circular debt fell by PKR 779 billion in FY2024-25 to PKR 1.614 trillion from PKR 2.393 trillion a year earlier, marking one of the largest annual reductions in recent years.

Losses at power distribution companies, or DISCOs, also continued to narrow. Losses declined to PKR 326 billion in FY2025-26 from PKR 397 billion in FY2024-25, following an earlier reduction from PKR 591 billion in FY2023-24.

Over the past two years, DISCO losses have been reduced by PKR 265 billion, the Power Division said, attributing the improvement to structural reforms across the electricity sector.

"The positive impact of power sector reforms continues to be reflected in the sector's financial performance," the spokesperson said, adding that the reform agenda remains focused on improving efficiency, reducing losses and placing Pakistan's energy sector on a financially sustainable footing.