Islamabad, May 19, 2025: Pakistan has pledged to wipe out its circular debt stock, amounting to Rs. 2.4 trillion, equivalent to 2.1% of the national GDP by the close of the fiscal year 2025.
According to the first review report released by the International Monetary Fund (IMF), the government intends to settle Rs. 348 billion by renegotiating outstanding payments with independent power producers (IPPs).
This amount comprises Rs. 127 billion from existing subsidy allocations and Rs. 221 billion sourced from the Central Power Purchasing Agency’s internal funds.
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In addition, Rs. 387 billion will be resolved through the waiver of interest payments. A further Rs. 254 billion will be disbursed from new budgeted subsidies. Meanwhile, non-interest-bearing liabilities worth Rs. 224 billion will remain unsettled.
To address the remaining Rs. 1,252 billion, the state will rely on commercial bank financing. This includes Rs. 683 billion earmarked for repaying all existing loans held by Power Holding Limited and Rs. 569 billion to clear the rest of the interest-accruing arrears owed to energy producers.
The newly arranged loans will come with lower interest rates compared to the current obligations tied to circular debt. Annual repayments will be covered through a dedicated surcharge for debt servicing, applied over a six-year term.
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This surcharge will initially be pegged at 10% of the revenue requirements set by NEPRA and will be revised annually during the rebasing process. Should revenue collection fall below expectations, the surcharge will be raised to cover the gap.
Importantly, no government subsidy will be used to offset any revenue deficiency. A plan to address the remaining Rs. 337 billion in interest-based circular debt projected to remain by the end of FY2025 will be developed during the FY2026 budget preparations, without relying on subsidies.
The authorities have revised downward their circular debt reduction targets. The burden will continue to ease and is projected to be fully eliminated by FY2031.
By the end of January 2025, the total circular debt had reached Rs. 2,444 billion.
