ISLAMABAD: The government’s claim of reducing Pakistan’s power sector circular debt has come under scrutiny after a new report revealed that fresh circular debt has increased sharply during the current fiscal year, raising questions about the sustainability of recent financial measures.
According to a report by the Economic Policy and Business Development (EPBD) Think Tank, new circular debt in the power sector surged from Rs18 billion to Rs240 billion during the first ten months of FY2025-26, despite official claims that the overall stock of circular debt had declined.
The report argues that the apparent reduction in circular debt has not been achieved through structural reforms but rather through refinancing and recycling of liabilities, effectively changing the form of the debt instead of eliminating it.
While official figures indicate a 23% reduction in the total stock of power sector circular debt, the think tank said the underlying financial burden has continued to grow, with fresh liabilities accumulating rapidly over the same period.
According to the report, the main drivers behind the continued rise in circular debt include costly Power Purchase Agreements (PPAs), unsustainably high capacity payments, and the poor operational performance of power distribution companies (DISCOs), all of which continue to generate significant financial losses across the sector.
The think tank warned that relying on financial adjustments and refinancing mechanisms may temporarily improve headline figures but does not resolve the underlying structural issues. Instead, it said, the circular debt is merely being shifted from one financial instrument to another, leaving the sector’s long-term challenges unaddressed.
The report emphasized that without comprehensive reforms in power generation contracts, distribution efficiency, and sector governance, Pakistan’s circular debt problem is likely to persist despite official claims of improvement.
