To tackle Pakistan’s power sector circular debt, the federal cabinet approved a Rs 1.275 trillion loan plan from commercial banks on June 18, 2025. The financing will be acquired at low interest rates, aiming to reduce rather than simply maintain the growing circular debt burden.
The approved plan is structured to retire dues of Independent Power Producers (IPPs) and clear liabilities of Power Holding Limited. This move marks a strategic policy shift, targeting a long-term reduction of circular debt over six years through structured bank disbursements. According to official updates, the loan will be processed before the end of June 2025, ensuring its inclusion in the upcoming fiscal budget documents.
The loan’s cost will partly be recovered from electricity consumers through an additional surcharge. As of March 2025, Pakistan’s total circular debt stood at Rs 2.4 trillion. Out of this, Rs 1.633 trillion was owed to power producers—reflecting a Rs 33 billion increase since July 2024—while Rs 683 billion was parked under Power Holding Limited.
Additionally, Rs 223 billion remains receivable from K-Electric, including Rs 186.5 billion in markup payments. The new financial model is expected to ease these liabilities while creating room for structural reforms in the energy sector.
Global financial institutions have consistently flagged circular debt as a critical issue, linking it to ineffective policy frameworks and governance challenges. They have also recommended the removal of the Rs 3.21 per unit cap on debt service surcharge by June 2025 to support debt servicing.
