ISLAMABAD: Pakistan’s banking sector and power sector occupy very different corners of the economy, yet one has become a model of stability while the other remains trapped in a cycle of losses and debt. The contrast offers an important lesson for policymakers searching for solutions to the country’s growing energy crisis.
After years of reforms and institutional coordination, Pakistan successfully exited the Financial Action Task Force (FATF) grey list in October 2022. The process required banks, regulators and government agencies to work in unison, strengthening compliance systems and improving oversight. Combined with lessons learned from the 2008 global financial crisis, these reforms helped create a more resilient banking sector.
The results are visible. Despite declining interest rates, Pakistan’s banking industry reported cumulative profits of Rs671 billion in CY25, reflecting the strength and stability of the system. Banks today operate through a framework where customers are identified, tracked and held accountable across institutions. A default with one bank can affect a customer’s ability to borrow from another, creating a culture of financial responsibility.
The same cannot be said for Pakistan’s power sector.Despite repeated tariff increases and government interventions, the sector continues to bleed financially. Circular debt remains one of the largest threats to Pakistan’s fiscal stability. According to official estimates, the sector added Rs224 billion to circular debt during the first eight months of the current fiscal year. At the same time, transmission and distribution losses continue to impose a massive burden on the system.
The power regulator has identified unrecovered losses worth hundreds of billions of rupees as a major contributor to the sector’s financial troubles. These losses are driven by electricity theft, poor bill recovery and operational inefficiencies that continue to undermine the viability of distribution companies.
Unlike the banking sector, accountability in the energy sector is often tied to a property rather than an individual. As properties change hands, outstanding dues frequently become difficult to recover. Consumers can disconnect, relocate or exploit loopholes in the system, leaving utilities and ultimately taxpayers to absorb the losses.This raises an important question: why should electricity and gas connections not be linked directly to verified individuals?
A CNIC-based and biometric verification system for utility connections could significantly improve accountability. Such a framework would allow utilities to track payment histories, identify chronic defaulters and ensure greater transparency in ownership and responsibility. Utility obligations could become part of an individual’s broader financial profile, much like loan repayments and credit records.
The timing for such reforms is particularly important. The government has already invited expressions of interest from local and international investors for the privatization of several electricity distribution companies. Investors are unlikely to commit substantial capital unless there is confidence that losses, theft and recoveries can be effectively managed.
Reforming the power sector will require more than higher tariffs. Sustainable improvement depends on better governance, stronger enforcement and a unified approach to consumer accountability. The banking sector’s experience demonstrates that institutional coordination and robust identification systems can transform an industry once considered vulnerable.
Pakistan’s energy sector now faces a similar crossroads. Circular debt reached Rs1.854 trillion in the first 10 months of FY26, while distribution companies posted losses of Rs169 billion and recovery shortfalls of Rs57 billion. Without meaningful reforms, these liabilities will continue to strain public finances and undermine investor confidence. With stronger accountability mechanisms and coordinated enforcement, however, the sector can move toward the stability and discipline that have helped make the banking industry one of Pakistan’s most resilient sectors.
The lesson is simple: accountability works. The challenge is extending it beyond banking and into the sector that powers the entire economy.
