Decades of piling circular debt have strained Pakistan’s power sector, putting enormous pressure on the country’s broader fiscal landscape. But fresh developments indicate a clear departure from the old cycle of borrowing and patchwork solutions. In a recent conversation hosted by VCast Online, Zafar Masud, Chairman of the Pakistan Banks’ Association (PBA), shared pointed insights into how post-budget reforms are laying down a much-needed roadmap to rescue and stabilize the sector.
Masud, who has been closely tracking the interplay between the financial sector and energy value chain, explained that Pakistan’s latest budget has finally signaled political will to address the roots of the circular debt problem. According to him, cash flow discipline is now taking center stage, backed by coordinated efforts between government bodies, regulators, and financial institutions.
Circular debt, which has ballooned to over Rs2.3 trillion by some estimates, remains one of the most stubborn challenges to Pakistan’s macroeconomic stability. Past attempts have often revolved around tariff adjustments or sporadic bailout packages that failed to fix the underlying inefficiencies. Masud emphasized that this time, reforms are focusing on plugging leakages, ensuring timely payments across the supply chain, and rethinking how subsidies are structured to reach the most vulnerable without distorting the entire revenue cycle.
A key aspect discussed was the planned improvement in billing and recovery mechanisms. Enhanced governance in distribution companies (DISCOs), combined with digital monitoring tools, is expected to reduce theft and line losses—two chronic issues that have historically deepened the sector’s financial woes. Masud pointed out that technology-led oversight is becoming a cornerstone of this transition, allowing real-time tracking of cash flows and making it easier to enforce accountability.
He also touched upon the banking sector’s renewed role in supporting these reforms. As banks carry substantial exposure to energy sector receivables, their collaboration is critical. The post-budget environment, Masud noted, is fostering greater dialogue between financial institutions and power companies to structure repayments and inject new liquidity in a way that does not simply kick the debt can further down the road.
Perhaps most encouraging was his assertion that there is now a clear alignment between fiscal managers and sector stakeholders on maintaining budgeted allocations for power payments. This, Masud believes, will be instrumental in breaking the back of the circular debt cycle. It reflects a shift from crisis management to long-term planning—something Pakistan’s power sector has sorely lacked.
While challenges remain, the momentum generated by these coordinated efforts offers hope that the country might finally steer out of the recurring debt spiral. For a nation grappling with repeated energy shortages and economic pressures, these developments represent more than just sectoral reforms; they signal a step towards overall financial sustainability and investor confidence.
As Pakistan continues down this path, the success of these initiatives will hinge on rigorous implementation and sustained oversight. But if the current roadmap holds, there is cautious optimism that the power sector could emerge as a case study in structural turnaround rather than a perennial fiscal liability.