In a landmark move, the federal government has signed a Rs1.225 trillion financing agreement with a consortium of 18 leading banks to address Pakistan’s ballooning power sector circular debt. Finance Minister Muhammad Aurangzeb described the transaction as the largest financial restructuring deal in Pakistan’s history, marking a significant breakthrough for the struggling energy sector.
The signing ceremony, facilitated by the Ministry of Finance in Islamabad, was witnessed virtually by Prime Minister Shehbaz Sharif from New York. The premier termed the agreement a “significant milestone” in efforts to reduce circular debt, appreciating the task force for executing its responsibilities with excellence.
What the Circular Debt Deal Means
The agreement involves both restructuring and fresh financing. Around Rs659.6 billion will be restructured from existing bank loans, while Rs565.4 billion in fresh financing will clear overdue payments to power producers. Sovereign guarantees worth Rs660 billion will help unlock liquidity for critical sectors such as agriculture, SMEs, housing, healthcare, and education.
Finance Minister Aurangzeb called it a “win-win situation for all”, noting that the deal will ease the circular debt burden without imposing new costs on the government or consumers. The existing Rs3.23 per unit debt service surcharge will be redirected toward repayment, while loans will be priced at KIBOR minus 90 basis points, reflecting banks’ willingness to absorb lower earnings to support Pakistan’s economic recovery.
PM Shehbaz and IMF Reforms
PM Shehbaz Sharif highlighted that the government’s reform agenda had recently earned praise from IMF Managing Director Kristalina Georgieva. He stressed that the next step would be the privatisation of power distribution companies (DISCOs) and reducing line losses, urging officials to move forward with confidence and resolve.
Energy Minister’s Take
Federal Minister for Energy Sardar Awais Ahmad Leghari termed the Circular Debt Financing Facility a “landmark initiative” that would restore financial stability in the power sector. He emphasized that this step is part of a broader reform agenda aimed at ensuring sustainability and providing long-term relief to consumers.
A Public–Private Partnership Success
Pakistan Banks’ Association (PBA) Chairman Zafar Masud hailed the agreement as proof of the banking sector’s role in national development, saying:
“This transaction is not just about numbers; it reaffirms the banking industry’s role as a partner in Pakistan’s economic growth. The resolution of the circular debt reflects the power of collaboration between the public and private sectors.”
Why Circular Debt Matters
Circular debt in Pakistan’s energy sector has now crossed Rs2.3 trillion, equivalent to about 2.1% of GDP. It stems from low recoveries, electricity theft, unreimbursed subsidies, billing inefficiencies, and heavy capacity payments to Independent Power Producers (IPPs). This deal is expected to provide a template for long-term solutions, easing financial strain while boosting investor confidence.
For more details, you can read the full coverage on Dawn News, Geo News, and The News International.
