Shafaqna Pakistan: Pakistan’s power sector circular debt continued to increase despite government claims of reducing the overall burden, with a new report arguing that recent financial measures have shifted the debt rather than addressing its underlying causes.
According to a report by the Economic Policy and Business Development (EPBD) Think Tank, fresh circular debt in the power sector rose sharply during the first 10 months of fiscal year 2025–26, increasing from Rs18 billion to Rs240 billion.
The report challenges the government’s claim that circular debt has declined by 23%, contending that refinancing and debt recycling have altered the composition of the liabilities instead of eliminating the problem.
It states that while official figures indicate a reduction in the total stock of circular debt through financial restructuring, fresh liabilities continued to accumulate during the same period, pointing to persistent structural weaknesses in Pakistan’s electricity sector.
According to the report, expensive power purchase agreements (PPAs), rising capacity payments, and inefficiencies within electricity distribution companies (DISCOs) remain the primary drivers of losses in the power sector.
The think tank further argues that financial adjustments have only temporarily suppressed the circular debt problem without addressing its root causes.
Circular debt has remained one of Pakistan’s most significant economic challenges for years, placing pressure on public finances, increasing borrowing requirements, and affecting the financial health of electricity producers and fuel suppliers.
The government has previously maintained that refinancing initiatives and broader power sector reforms have helped reduce the overall circular debt stock. Officials have argued that restructuring liabilities would improve liquidity and support long-term reforms.
However, the report contends that unless structural issues—including costly generation contracts, transmission losses, electricity theft, weak bill recovery, and operational inefficiencies—are resolved, circular debt will continue to grow despite accounting adjustments.
Source: Dunya News
