Pakistan’s power sector is once again under scrutiny as official figures reveal a sharp increase in circular debt during the current fiscal year. This rise has occurred despite multiple financing agreements signed with commercial banks, raising fresh concerns about the sustainability of short-term debt control measures.
The latest data highlights the ongoing structural challenges facing the country’s energy sector.
Circular Debt Rises Sharply in Five Months
According to official records, Pakistan’s power sector circular debt increased by Rs. 223 billion during the first five months of the fiscal year.
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June 2025: Rs. 1.614 trillion
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September 2025: Rs. 1.693 trillion
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November 2025: Rs. 1.837 trillion
This steady increase between July and November reflects continued pressure on the sector, despite policy interventions aimed at stabilizing finances.
Debt Surge Accelerates in October and November
The data shows that Rs. 144 billion was added in just two months — October and November alone.
This rapid rise has sparked questions about whether recently announced banking arrangements are capable of delivering immediate relief or if deeper reforms are still required.
Banking Agreements and Government Measures
In September 2025, the federal government signed agreements with 18 commercial banks to raise Rs. 1.225 trillion to help contain circular debt.
Key features of the financing deal include:
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Loan tenure: 6 years
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Repayment structure: 24 quarterly instalments
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Purpose: Reducing power sector liabilities
However, the continued rise in debt suggests that these measures may take longer to produce visible results.
Electricity Consumers to Bear Repayment Cost
Officials confirmed that repayment of these loans will be funded through a Rs. 3.23 per unit surcharge imposed on electricity consumers.
This surcharge has added to public concern, especially as households and businesses already face high energy costs.
Broader Borrowing Plan Approved Earlier
Earlier in June 2025, the federal cabinet approved a wider borrowing plan of Rs. 1.275 trillion to settle dues of independent power producers and clear liabilities of the Power Holding Company (PHC).
From this amount:
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Rs. 683 billion has been allocated specifically for PHC payables
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Interest rate: Three-month KIBOR minus 0.9%
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Annual repayment cap: Rs. 323 billion
These steps aim to manage long-standing financial obligations within the energy sector.
Year-on-Year Picture Shows Partial Improvement
Despite the recent increase, there is some improvement when viewed on a year-on-year basis.
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November 2024: Rs. 2.381 trillion
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November 2025: Rs. 1.837 trillion
The reduction of Rs. 544 billion compared to last year is attributed to repayments and debt restructuring efforts.
Why Circular Debt Remains a Major Concern
Experts believe that while financing deals provide temporary relief, structural inefficiencies, delayed payments, and high generation costs continue to drive circular debt.
Without long-term reforms, short-term borrowing may only shift the burden rather than resolve the core issues.
