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ISLAMABAD: Power sector circular debt climbed to Rs 1.924 trillion by May 31, 2026, significantly overshooting the government’s target and complicating its commitments under the International Monetary Fund (IMF) programme, according to official documents.
The Power Division informed the Economic Coordination Committee (ECC) that despite improvements in recoveries, lower technical losses and reduced financing costs, the circular debt stock had reached Rs 1.924 trillion by the end of May, including Rs 873 billion owed to banks under circular debt financing arrangements.
The government had committed to the IMF to reduce the circular debt stock to Rs 1.614 trillion by June 30, 2026, but officials acknowledged that the target could not be achieved. According to government sources, the debt stock stood at around Rs 1.835 trillion at the close of the fiscal year, leaving a gap of more than Rs 220 billion from the agreed benchmark.
Officials attributed the shortfall primarily to the non-payment of approximately Rs200 billion in electricity purchase dues by K-Electric and the weak financial performance of several power distribution companies (Discos). They argued that the delayed recovery of receivables severely constrained cash flows across the power sector.
To address the growing liquidity crisis, the Power Division sought the release of Rs152 billion through a Technical Supplementary Grant (TSG) to be injected as government equity into power distribution companies. It also proposed re-appropriating Rs 97.649 billion allocated under K-Electric’s Tariff Differential Subsidy (TDS) to meet sector-wide financing needs and support the Circular Debt Management Plan agreed with the IMF.
The ECC was informed that a total of Rs893 billion had been allocated for power sector subsidies during FY2025-26. Of this, Rs257 billion was earmarked as government equity for public power plants and independent power producers. However, only Rs105 billion had been released by the time the summary was prepared, leaving Rs152 billion pending.
Officials further emphasized that the requested funding did not require additional fiscal resources but involved releasing already budgeted allocations to reduce the circular debt stock and meet IMF obligations.
The ECC also discussed K-Electric’s outstanding liabilities and directed the Power Division to actively pursue legal proceedings related to the utility’s dues in consultation with the Ministry of Law and Justice and the Attorney General’s Office.
After deliberations, the ECC partially approved the proposal by allowing the release of Rs54.451 billion, after adjusting available funds under the K-Electric subsidy allocation, instead of approving the full Rs152 billion requested by the Power Division.
The IMF, in its latest staff report, had earlier projected that Pakistan would successfully contain the circular debt stock at Rs 1.614 trillion by the end of June, citing lower international energy prices, improved recoveries and reduced interest rates. However, official figures now indicate that the government fell short of that target despite the implementation of several corrective measures.
