Pakistan to Cut Circular Debt by Rs1.8 Trillion Using Commercial Bank Loans, IMF Conditions

ISLAMABAD – In a landmark fiscal effort aligned with IMF benchmarks, the government is set to slash the country’s circular debt in the power sector from Rs2.381 trillion to just Rs561 billion, by releasing Rs1,275 billion sourced from commercial bank loans.

Officials revealed that the Central Power Purchase Agency–G (CPPA-G) will use the funds to:

• Clear Power Holding Limited (PHL) debts of Rs683 billion

• Settle Rs569 billion owed to Independent Power Producers (IPPs)

This financial restructuring is expected to stabilize the power sector, making it more sustainable and less reliant on government bailouts.

The credit for this breakthrough has been attributed to the Power Sector Task Force, led by Adviser Muhammad Ali and Lt Gen Zafar Iqbal, with support from experts at NEPRA, SECP, and CPPA-G. The task force secured the waiver of Rs387 billion in IPP late payment interest (LPI) and facilitated arrear payments of Rs348 billion, partially funded through subsidies.

Though Rs561 billion in circular debt will remain—split between non-interest-bearing (Rs224 billion) and interest-bearing (Rs337 billion) components—officials plan to reduce this further through structural reforms and Disco performance improvement.

The Rs1,275 billion repayment will be financed by a Debt Service Surcharge (DSS) of Rs3.23 per unit, which consumers are already paying. This surcharge will remain in effect for the next six years but will not increase in rate. However, the government has removed the 10% cap on the surcharge at the IMF’s insistence, without any current plan to raise it further.