Pakistan’s power sector circular debt stood at Rs. 1.85 trillion as of April 2026, showing a marginal increase from Rs. 1.84 trillion recorded in February, although remaining significantly below the Rs. 2.41 trillion level reported in April last year.
According to data compiled by Arif Habib Limited using figures from the Ministry of Energy, circular debt increased by Rs. 240 billion during the first ten months of fiscal year 2025-26. This represents a sharp rise of 1,233 percent compared with an increase of just Rs. 18 billion during the same period last year.
Analysts attributed the increase largely to the continued underperformance of electricity distribution companies, commonly referred to as DISCOs. Distribution losses and revenue under recoveries together added an estimated Rs. 226 billion to circular debt during the period, according to the data.
While under-recoveries showed noticeable improvement compared with previous years, distribution losses remained a persistent structural issue, reflecting inefficiencies in billing, theft control and system management across several regions.
At the same time, the data indicated a significant improvement in payments to independent power producers. Stock payments to IPPs reached Rs. 236 billion during the period under review, compared with Rs. 151 billion in the corresponding period last year.
Officials say the higher payments reflect improved liquidity conditions within the power sector.
The government also continued implementing its circular debt management strategy through refinancing measures. In its December 2025 circular debt report, authorities introduced a separate financing category after transferring liabilities previously parked in Pakistan Holding Limited into commercial bank financing facilities.
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As of April 2026, repayments of Rs. 96 billion had been made under this refinancing arrangement. The initiative aims to lower borrowing costs by replacing older liabilities with financing linked to KIBOR minus 0.9 percent, easing interest expenses for the sector.
Despite the increase recorded during the fiscal year, the overall circular debt stock remained more than 23 percent lower than the level recorded in April 2025. Officials say this decline reflects gradual progress in tackling the power sector’s long-standing financial imbalances.
Energy sector experts caution, however, that sustained improvements will depend on deeper reforms at the distribution level, including loss reduction, better governance and stricter enforcement against electricity theft. Without these measures, they warn, circular debt pressures could resurface despite short-term liquidity gains.
