Pakistan has signed a massive Rs1.225 trillion agreement with the banking sector to tackle the growing circular debt in its power industry. This landmark deal, finalized on September 25, 2025, at the Prime Ministers House in Islamabad, brings together 18 major banks and government bodies to ease financial strain and boost energy stability.
Breaking Down the Agreement
This transaction stands out as one of the largest financial moves in Pakistans history. It focuses on restructuring old loans and providing new funds to clear overdue payments.
The deal splits into two main parts. First, it restructures Rs659.6 billion in existing bank loans. Second, it adds Rs565.4 billion in fresh financing for independent power producers. Officials say this setup helps without adding extra costs to the national budget.
Banks offered the funds at lower rates, using a floating interest based on KIBOR minus 90 basis points. This makes repayment easier over six years. The plan also frees up Rs660 billion in sovereign guarantees, giving banks more room to lend elsewhere.
Here is a simple breakdown of the deals structure:
| Component | Amount (Rs Billion) | Purpose |
|---|---|---|
| Loan Restructuring | 659.6 | Refinance old power sector debts |
| Fresh Financing | 565.4 | Pay overdue amounts to power producers |
| Total Facility | 1,225 | Reduce overall circular debt |
This table shows how the funds target specific issues in the energy chain.
Roots of the Circular Debt Crisis
Circular debt has plagued Pakistans power sector for years, reaching about Rs2.4 trillion by mid-2025. This buildup comes from unpaid bills, inefficient collections, and high transmission losses.
Experts point to several causes. Power companies often fail to collect full payments from consumers. Government subsidies sometimes fall short, leaving gaps. Theft and outdated infrastructure add to the problem, pushing the debt higher each year.
Recent data shows the debt grew by 2.9 percent month-on-month in July 2025, even after price hikes. Without action, it could hit Rs2.8 trillion by years end. This deal steps in to stop that spiral and create a more stable system.
The crisis has real effects on daily life. Frequent blackouts disrupt businesses and homes. It also scares away investors who worry about unreliable energy supplies.
How the Deal Benefits Consumers and Economy
A key feature is that it avoids new charges for electricity users. Instead, it uses an existing Rs3.23 per unit surcharge to cover repayments. This keeps bills from rising further.
For the economy, the impact could be wide-reaching. Released funds from guarantees might flow to farming, small businesses, housing, schools, and health care. This could spark growth in these areas.
Bank leaders say the move shows teamwork between public and private sectors. It builds trust and encourages more investments. With energy costs making up a big part of GDP, fixing this could help control inflation and create jobs.
- Supports energy firms by clearing dues, improving their operations.
- Boosts banking liquidity for loans in key growth sectors.
- Promotes long-term reforms like better bill collection and reduced losses.
These points highlight the practical gains from the agreement.
Voices from the Signing Ceremony
At the event, officials praised the effort. Finance ministry representatives called it a historic step toward fiscal health. They noted months of talks led to this balanced solution.
Zafar Masud, head of the Pakistan Banks Association, spoke about the bigger picture. He said banks stepped up to help the nation, not just for profit. This partnership could set an example for future challenges.
Energy experts at the ceremony stressed the need for ongoing reforms. They warned that without changes in how power is managed, debt could build up again.
Looking Ahead: Challenges and Opportunities
While the deal offers relief, experts say more work is needed. Circular debt has roots in policy issues that require fixes beyond financing.
Possible next steps include upgrading grids and fighting power theft. Government plans aim to cut losses from 17 percent to lower levels by 2027. Success here could make the sector self-sustaining.
Recent events, like the 2024 price increases that failed to curb debt growth, show the urgency. This agreement buys time, but real progress depends on execution.
Overall, this move signals hope for Pakistans economy. It ties into global trends where countries tackle energy debts through smart financing. If it works, it could inspire similar efforts elsewhere.
What do you think about this deal? Share your views in the comments and spread the word to keep the conversation going.
