Pakistan completes record Rs659.6bn power sector Circular debt settlement
Pakistan has completed its largest-ever capital markets debt transaction, settling Rs659.6 billion in power sector liabilities in a major push to curb the country’s chronic circular debt, Power Minister Sardar Awais Ahmed Khan Leghari said Wednesday.
The settlement forms a central pillar of the government’s Rs1.225 trillion Circular Debt Reduction Plan and is aimed at easing long-standing liquidity pressures across the energy supply chain. It includes Rs399.6 billion raised through the redemption of Power Holding Limited’s Pakistan Energy Sukuk (PES) I and II via an off-market transaction in the negotiated deal market, along with Rs259.7 billion cleared under various syndicated financing facilities.
In a post on X, Leghari described the deal as a landmark transaction and said it reflects strong institutional confidence in Pakistan’s economic reforms, government initiatives and the growing depth of its capital and Islamic finance markets. He added that the successful execution of the transaction demonstrates the capacity of Pakistan’s financial system to handle large-scale strategic operations.
The government, he said, remains committed to structural reforms in the energy sector alongside long-term fiscal stabilization, and will continue to engage stakeholders to accelerate reform-driven growth.
Circular debt — the web of unpaid bills among power producers, fuel suppliers and distribution companies — has been one of Pakistan’s most persistent economic vulnerabilities for more than a decade. The problem has worsened due to inefficiencies in state-run distribution companies, rising capacity payments to power producers, electricity theft, delayed tariff adjustments and subsidies that outpaced budgetary support.
The accumulation of circular debt has repeatedly strained public finances, disrupted fuel supplies and discouraged private investment in the power sector. By late 2024, total circular debt had climbed well above Rs2 trillion, becoming a central concern in negotiations with international lenders.
Officials say the latest debt cleanup is aligned with structural reforms under Pakistan’s ongoing International Monetary Fund program, which calls for cost-reflective tariffs, tighter fiscal discipline and improved governance of state-owned utilities.
Analysts caution that while the massive settlement offers short-term relief and boosts market confidence, lasting progress will depend on fixing deep-rooted inefficiencies in power distribution and pricing to prevent the debt from rebuilding once again.
