ISLAMABAD: The federal government has acknowledged that Pakistan’s power sector circular debt increased by Rs61 billion during fiscal year 2025-26, attributing the rise primarily to reduced budgetary allocations rather than a decline in sector performance.
In an official statement issued on Tuesday, the Power Division said the government had committed to the International Monetary Fund (IMF) to contain the circular debt stock at Rs1.614 trillion by June 30, 2026.
According to the ministry, the power sector achieved a major reduction in circular debt during FY2024-25, bringing it down from Rs2.393 trillion in FY2023-24 to Rs1.614 trillion, reflecting the impact of ongoing structural reforms.
However, the government noted that although Rs893 billion had been allocated to the power sector in the FY2025-26 budget, a subsequent Rs98 billion reduction in funding slowed the pace of debt reduction.
The Power Division spokesperson explained that if the full allocation had been released, circular debt would have declined further to Rs1.577 trillion. Instead, the funding shortfall resulted in a Rs61 billion increase during the current fiscal year.
The ministry also highlighted significant improvements in the financial performance of power distribution companies (DISCOs). Losses declined from Rs591 billion in FY2023-24 to Rs397 billion in FY2024-25, representing a reduction of Rs193 billion. During the ongoing fiscal year, losses have been further reduced to Rs326 billion.
Overall, the Power Division said it has lowered DISCO losses by Rs265 billion over the past two years, demonstrating sustained improvements in operational efficiency and the effectiveness of ongoing reforms.
Officials emphasized that the recent increase in circular debt should be viewed as a temporary consequence of budgetary constraints rather than a reversal of reform progress. They reiterated the government’s commitment to strengthening the financial sustainability of the power sector while improving service reliability for consumers.
To address the funding gap, the Power Division recently proposed two options to the Economic Coordination Committee (ECC). The first called for the release of Rs97.649 billion as advance subsidies against future tariff differential claims, along with the adjustment of TESCO’s Rs44.198 billion tariff differential subsidy (TDS) arrears against outstanding subsidy advances. The second proposed releasing Rs53.451 billion as advance subsidy and Rs44.198 billion specifically to clear TESCO’s arrears.
The ECC reviewed the proposal titled “Release of Rs152 billion TSG as equity in Power Distribution Companies and re-appropriation of available budget” and partially approved the request, authorizing the release of Rs54.451 billion after adjusting Rs97.549 billion from the total proposed amount.
Story by Mushtaq Ghumman
