ISLAMABAD: Pakistan has informed the International Monetary Fund (IMF) that it will not pay Rs220 billion in interest to Chinese independent power producers (IPPs) for delayed electricity payments and will instead seek a waiver from Beijing. The government only recognizes Rs250 billion as the principal amount due, rejecting the surcharge as part of the Rs1.7 trillion circular debt.
During ongoing IMF talks for the release of $1.2 billion in loan tranches, the Power Division briefed the Fund that despite improved performance last year, the power sector’s circular debt will rise by over Rs500 billion in FY2025-26, requiring Rs540 billion in fresh budgetary support to offset losses.
The stance risks straining ties with China, as recent CPEC discussions emphasized stability in electricity pricing and settlement of dues through “friendly consultation.” Since 2017, Pakistan has paid Rs5.1 trillion to 18 Chinese power plants, covering 92% of billed amounts, including interest. However, overdue payments now stand at Rs423 billion.
China has repeatedly urged Pakistan to operationalize the revolving account for CPEC projects, ensuring timely settlements and forex conversion. The IMF, meanwhile, raised concerns over declining residential electricity demand, the persistent rise in circular debt, and fiscal risks.
While the Fund acknowledged Pakistan’s success in reducing circular debt stock from Rs2.42 trillion to Rs1.6 trillion last year through subsidies and improved recoveries, it warned that the trend is unsustainable. Industrial demand is rising as factories shift from gas to grid power, but the gas sector’s Rs2.6 trillion debt remains unaddressed.
Story by Shahbaz Rana
