ISLAMABAD – The federal government has set a target to bring the power sector’s circular debt inflow to zero during the current fiscal year, a key condition set by the International Monetary Fund (IMF) for the release of a $1.2 billion tranche under the Extended Fund Facility (EFF).
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Sources said Pakistan’s circular debt, currently standing at Rs1,615 billion, could rise to nearly Rs2,350 billion by the end of the fiscal year if corrective measures are not implemented. The government has launched multiple steps to ensure that the net inflow into circular debt remains zero in line with IMF requirements.
Key measures to curb the debt include annual rebasing of tariffs, which is expected to generate Rs55 billion in additional revenue. A reduction in losses by distribution companies (DISCOs) will contribute Rs18 billion, while improved recovery rates are projected to add Rs121 billion. Together, these measures are expected to cut the projected surge by Rs212 billion.
To address the remaining gap of Rs522 billion, the government plans principal repayments of Rs120 billion. Additionally, around Rs400 billion will be disbursed to government-owned power plants and Independent Power Producers (IPPs) to ensure zero net inflow into the circular debt stock.
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Officials said the IMF has emphasized that maintaining zero inflow into the power sector’s circular debt is crucial for Pakistan’s ongoing reform commitments. With the combination of rebasing, loss reduction, improved recoveries, and targeted repayments, the government aims to stabilize the power sector’s finances and meet the IMF’s requirements by the end of the fiscal year.