Pakistan is embarking on what could be one of its most comprehensive attempts yet to address the chronic problem of circular debt, which has long weighed down the country’s power sector and broader economy. With outstanding liabilities now exceeding PKR 2.3 trillion, largely driven by low recoveries, persistent unpaid subsidies, operational inefficiencies, and flawed billing systems, the scale of the challenge is formidable.
In a significant shift, the Pakistan Banks’ Association (PBA), State Bank of Pakistan (SBP), Ministry of Finance, Government of Pakistan, and the Energy Task Force have come together to implement a multi-pronged approach aimed at tackling the circular debt burden through structured financial and governance reforms.
Central to this initiative is the redirection of the PKR 3.23 per kilowatt-hour debt service surcharge. Previously a general revenue stream, this surcharge will now be channeled directly to banks to help recover outstanding loans tied to the energy sector. This move is designed to ensure a steady repayment mechanism that will ease pressure on banks’ balance sheets and restore confidence in lending to the power sector.
Alongside this measure, financing costs associated with energy sector debt have been trimmed by 135 basis points. This reduction lowers the debt servicing load on power companies, improving their ability to settle dues and freeing up working capital for other critical needs. By cutting the cost of borrowing, the plan aims to stabilize the financial operations of energy entities, making it easier to maintain consistent fuel and generation payments.
The reform blueprint also places heavy emphasis on leveraging technology to improve governance. A robust digital tracking mechanism is being introduced to monitor power flows and financial transactions in real time. This system is expected to play a key role in reducing theft, plugging inefficiencies, and enhancing accountability across distribution companies. It marks a notable pivot towards using data-driven oversight to solve longstanding structural problems in the sector.
In another important shift, liquidity that becomes available from these interventions is being strategically redirected toward priority sectors of the economy. This includes investment in projects and industries that can generate sustainable growth and employment, creating a broader economic multiplier effect beyond just fixing balance sheets.
Officials and sector analysts see this approach as more than a conventional debt settlement. It represents an effort to establish disciplined cash flow management, underpinned by policy coordination and technological enforcement. By structurally resolving payment cycles, Pakistan hopes to secure a more sustainable energy supply chain, ultimately benefiting industries, households, and the economy at large.
The new framework arrives at a time when global commodity prices and local currency pressures have made energy affordability a key public concern. Ensuring the financial health of the power sector while keeping tariffs within reach is a delicate balancing act, and this initiative is seen as an essential step to regain control over spiraling sector debts.
As these reforms take hold, success will hinge on consistent policy implementation and transparent reporting. The involvement of the SBP and commercial banks is expected to bring financial discipline, while digital oversight tools could finally close gaps that have allowed losses and non-payments to accumulate for decades.
With the combined weight of Pakistan’s financial regulators, government ministries, and private banks behind this initiative, stakeholders are hopeful that it will set the stage for a stronger, more resilient energy landscape. For consumers, this could mean fewer disruptions and more reliable services. For the economy, it promises a critical boost in restoring investor confidence and easing fiscal constraints that have long hampered growth.