ISLAMABAD – Pakistan’s power sector circular debt is set to approach Rs1.9 trillion, rising from Rs1.689 trillion recorded during the first half of fiscal year 2025-26, highlighting renewed and intensifying stress in the country’s energy sector finances.
According to a report by Business Recorder, the key development is the sharp increase in debt stock to Rs1.889 trillion as of February 28, 2026. Within this total, liabilities linked to China-Pakistan Economic Corridor (CPEC) power projects have touched an all-time high of Rs543 billion, underscoring the growing financial burden associated with capacity payments to independent power producers.
Rs200 Billion Jump in Just Two Months
The nearly Rs200 billion increase in circular debt over a span of just two months has been attributed to lower recovery rates and higher system losses compared to the targets set by the National Electric Power Regulatory Authority (NEPRA).
The deterioration has raised fresh concerns from the International Monetary Fund (IMF), which has repeatedly flagged the circular debt issue as a major threat to Pakistan’s economic stability and fiscal health.
Officials had earlier committed to bringing circular debt down to Rs1.614 trillion by the end of the current fiscal year. However, medium-term targets have now been revised upward to Rs1.346 trillion by June 2027, indicating that the government expects the debt trajectory to remain elevated for longer than previously anticipated.
Government Response and Consumer Burden
To contain the situation, the government recently approved a Rs200 billion technical supplementary grant structured as equity support for distribution companies, also known as DISCOs. The infusion is intended to help improve their financial viability and reduce the stock of unpaid dues. Meanwhile, consumers continue to bear a debt service surcharge of Rs3.23 per unit, adding to already high electricity bills and fueling public discontent.
The issue is expected to remain a key policy concern as Pakistan engages with the IMF on broader energy sector reforms. It is also slated for discussion at NEPRA’s upcoming public hearing on fuel charge adjustments for February 2026, where regulators and stakeholders will examine the causes behind the latest spike and potential remedial measures.
With circular debt once again on an upward trajectory, analysts warn that without structural reforms – including improved recovery, reduced losses, and renegotiated power purchase agreements – Pakistan’s energy sector could continue to drain national exchequer resources and undermine broader economic recovery efforts.
