KARACHI: Pakistan has unveiled a landmark circular debt resolution plan worth Rs1.225 trillion ($4.29 billion) in the power sector. Consequently, the plan aims to stabilize the country’s struggling energy market and meet long-standing reform demands.
Federal Power Minister Sardar Awais Ahmed Khan Leghari, speaking at a nationally televised ceremony, said the step is designed to break the debt cycle that has weighed heavily on the sector for years.
“The circular debt has long drained Pakistan’s energy system,” Leghari stated. “This new scheme is not a temporary fix. Rather, it is a sustainable circular debt resolution that strengthens liquidity without burdening the government or consumers.”
He explained that the package restructures Rs660 billion ($2.31 billion) in existing loans and secures Rs565 billion ($1.98 billion) in fresh financing. As a result, it will help clear overdue payments to power producers. Repayments will follow an existing surcharge of 3.23 rupees per unit; therefore, electricity users will face no new charges.
The finance ministry highlighted that 18 commercial banks finalized the agreement. Furthermore, the Pakistan Banks Association coordinated the process, and the State Bank of Pakistan backed it. Officials described the initiative as a key reform milestone, especially ahead of the International Monetary Fund’s (IMF) upcoming performance review under its $7 billion program.
In addition to resolving immediate liabilities, the plan also frees Rs660 billion ($2.31 billion) in sovereign guarantees. Authorities stated that they will redirect these funds to agriculture, small businesses, housing, health, and education. Consequently, this redirection will help spur wider economic growth.
Prime Minister Shehbaz Sharif, addressing the ceremony via video link from New York, called the development a “historic breakthrough.” Moreover, he stressed that the government’s next priorities include privatizing power distribution companies and tackling line losses in the grid system.
With the circular debt resolution, Pakistan hopes to send a strong signal of financial discipline to international lenders. Simultaneously, it will provide relief to the energy sector and consumers.
