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Summary A think tank report says Pakistan's power sector circular debt rose to Rs240 billion in 10 months despite government claims of a 23pc reduction.
KARACHI (Web Desk) - Pakistan's power sector circular debt has continued to rise despite government claims of reducing the overall burden, with a new report alleging that recent financial measures have merely shifted the debt rather than resolving the underlying problem.
According to a report released by the Economic Policy and Business Development (EPBD) Think Tank, new circular debt in the power sector increased sharply during the first 10 months of fiscal year 2025-26, climbing from Rs18 billion to Rs240 billion.
The report disputes the government's assertion that power sector circular debt has fallen by 23%, arguing that refinancing and debt recycling have changed the structure of liabilities instead of eliminating them.
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.
