Pakistan is actively negotiating with international lenders and Saudi Arabia to secure approximately $36 billion in long-term financing to refinance the power sector’s debt obligations, a move aimed at easing electricity tariffs, particularly for industrial consumers. The proposed refinancing is expected to span 13 years, beginning from fiscal year 2027, and is part of a broader strategy to address the country’s circular debt and enhance energy sector sustainability.
Officials indicate that discussions are ongoing with major multilateral institutions, including the World Bank and the Asian Development Bank (ADB), at an indicative interest rate of around 2 percent. In parallel, Pakistan is engaging with Saudi Arabia to explore financing at a lower rate of about 1 percent. These initiatives reflect a coordinated effort by the government to leverage international and bilateral support to reduce the financial burden on the power sector and industrial consumers.
The Power Division has submitted detailed refinancing proposals to the World Bank and ADB over recent months, outlining a structured repayment plan. Under the plan, the refinancing requirement is estimated at $4.40 billion for FY27, $4.18 billion for FY28, $4.44 billion for FY29, $3.97 billion for FY30, and continues in declining installments, reaching $1.21 billion in FY39. This gradual schedule aims to provide long-term relief while ensuring debt sustainability and fiscal discipline.
Pakistan’s circular debt currently stands at approximately Rs1.8 trillion, with the government targeting a reduction to Rs1.6 trillion by June 30, 2026. To support this, Rs1.225 trillion was recently raised from commercial banks, and a debt service recovery charge of Rs3.23 per unit has been maintained for the next six years to systematically reduce the arrears to zero.
Projections suggest that if refinancing is arranged through multilateral institutions at around 2 percent interest, industrial electricity tariffs would be adjusted to 8.70 cents per unit in FY27, gradually varying across the years with a projected 9.18 cents per unit in FY39. In the event of securing financing from Saudi Arabia at approximately 1 percent, the tariffs could be further reduced, starting at 8.62 cents per unit in FY27 and reaching 9.03 cents per unit by FY39. These adjustments are expected to provide tangible relief to industrial consumers while enhancing the competitiveness of Pakistan’s manufacturing and export sectors.
The $36 billion refinancing initiative is viewed as a strategic step in stabilizing Pakistan’s power sector, addressing persistent circular debt issues, and enabling long-term tariff rationalization. By leveraging concessional and low-interest financing from both international financial institutions and friendly bilateral partners, Pakistan aims to create a sustainable framework for energy sector funding, reduce costs for industrial users, and improve overall economic efficiency.
Experts suggest that successful implementation of this refinancing plan could serve as a blueprint for managing large-scale sectoral debt in developing economies, balancing fiscal prudence with the need for affordable energy and long-term growth.
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