ISLAMABAD: Pakistan’s power sector circular debt rose by Rs223 billion in the first five months of the current fiscal year, reaching Rs1.837 trillion by November 2025, underscoring persistent financial stress despite recent agreements with commercial banks aimed at containing the debt, officials said.
The increase came even after the government signed agreements with banks in September 2025 to retire part of the debt. During October and November alone, circular debt grew by Rs144 billion, raising questions about the effectiveness of short-term financing measures.
According to official figures, power sector circular debt stood at Rs1.614 trillion in June 2025, rose to Rs1.693 trillion by September, and climbed further to Rs1.837 trillion by November — a net increase of Rs223 billion during July-November.
However, on a year-on-year basis, the stock of debt showed an improvement. Circular debt total volume that recorded Rs1.837 trillion by November 2025, was Rs544 billion less than in November 2024, when it had peaked at Rs2.381 trillion, reflecting repayments and restructuring efforts over the past year.
Notably, in September, the federal government signed agreements with 18 commercial banks to raise Rs1.225 trillion to reduce the circular debt. Under the deals, the loans have a six-year tenure and will be repaid in 24 quarterly installments. Repayment will be financed through a Rs3.23 per unit surcharge imposed on electricity consumers.
Earlier, in June 2025, the federal cabinet approved a broader plan to borrow Rs1.275 trillion from commercial banks to settle liabilities of independent power producers (IPPs) and clear dues of the Power Holding Company. Of this amount, Rs683 billion is earmarked specifically for Power Holding Company payables.
The financing carries an interest rate of three-month KIBOR minus 0.9%, with an annual repayment cap of Rs323 billion. Officials said that if interest rates rise in the future, the overall repayment ceiling could increase to Rs1.938 trillion.
Despite these measures, the continued accumulation of circular debt highlights structural weaknesses in the power sector, including high losses, inefficient recovery and reliance on consumer surcharges to service debt, analysts say.
