Pakistan inks record Rs1.225 trillion bank deal to ease power debt

Pakistan’s government signed a landmark Rs1.225 trillion ($4.4 billion) financing agreement with 18 commercial banks on Wednesday, marking the country’s largest-ever debt restructuring aimed at paring back its crippling circular debt in the power sector.

The deal, finalized at the Prime Minister House in Islamabad, includes the restructuring of Rs659.6 billion in existing loans and Rs565.4 billion in fresh financing, backed by sovereign guarantees of Rs660 billion.

Officials said the agreement will help stabilize the electricity supply chain and restore confidence among power producers who have long grappled with delayed payments. The government will release its details on Thursday.

To fund repayments, the government will rely on the existing Rs3.23 per unit surcharge already levied on electricity bills, assuring consumers no new charges will be added. Still, over the six-year repayment plan, households and businesses are expected to shoulder up to Rs1.9 trillion in surcharges—making the public the ultimate financier of the deal.

Banks have extended the facility at concessional terms, pegged at KIBOR minus 90 basis points, in what officials describe as a model transaction for addressing other structural challenges. “This agreement is not just numbers, it is a symbol of the country’s construction and development,” said Pakistan Banks’ Association Chairman Zafar Masood, calling the move a turning point for financial discipline in the power sector.

As of July 2025, the country’s circular debt stood at Rs1.66 trillion. The financing package, cleared by the cabinet earlier this year, is billed as a permanent solution to the power sector’s legacy debts, which have long strained public finances and deterred investment.