Govt Commits to Clear Rs. 2.4 Trillion Circular Debt By End of Current Fiscal Year

Pakistan has committed to clearing the Rs. 2.4 trillion circular debt stock by the end of fiscal year 2025. The debt represents 2.1 percent of GDP. According to the International Monetary Fund’s first review report, the government will settle Rs. 348 billion through renegotiated arrears with independent power producers. This includes Rs. 127 billion from already budgeted subsidies and Rs. 221 billion from the Central Power Purchasing Agency’s cash flow. An additional Rs. 387 billion will be cleared through waived interest charges. Another Rs. 254 billion will be paid through additional budgeted subsidies. Liabilities worth Rs. 224 billion that do not bear interest will remain unpaid. The remaining Rs. 1,252 billion will be financed through commercial bank borrowing. This includes Rs. 683 billion to repay all Power Holding Limited loans and Rs. 569 billion to clear the rest of the interest-bearing arrears owed to power producers. The new loan will carry a lower interest rate than existing circular debt obligations. Annual repayments will be funded through a debt service surcharge over six years. The surcharge will be set at 10 percent of NEPRA’s revenue requirement and adjusted annually during rebasing. If collections fall short, the surcharge will be increased. No subsidy will be used to cover any revenue shortfall. A retirement plan for the projected Rs. 337 billion remaining interest-bearing circular debt at the end of fiscal year 2025 will be prepared during the fiscal year 2026 budget process. This plan will not use any subsidy. The government has lowered circular debt targets. These will continue to decline and reach zero by fiscal year 2031. As of the end of January 2025, the circular debt stock stood at Rs. 2,444 billion.