Govt aims for zero inflow into power sector circular debt to meet IMF condition

ISLAMABAD: The federal government has decided to bring the power sector’s circular debt inflow to zero during the current fiscal year in line with conditions set by the International Monetary Fund (IMF) for the release of a $1.2 billion tranche under the Extended Fund Facility (EFF), sources said on Thursday.

Sources said Pakistan’s power sector circular debt is projected to rise by Rs735 billion, increasing from Rs1,615 billion to nearly Rs2,350 billion by the end of the fiscal year if corrective measures are not implemented.

However, officials noted that the government has initiated multiple steps to curb this projected increase and ensure that net circular debt inflow remains at zero, as required by the IMF program.

Key measures to contain the circular debt include annual rebasing, which is expected to generate Rs55 billion in additional revenue. A reduction in distribution companies’ (DISCOs) losses will contribute Rs18 billion, while improved recovery rates are projected to add Rs121 billion.

These improvements together will reduce the expected debt surge by Rs212 billion, according to sources.

To address the remaining Rs522 billion gap, the government plans to make principal repayments of Rs120 billion. Additionally, about Rs400 billion will be paid to government-owned power plants and Independent Power Producers (IPPs) to keep the circular debt stock at zero inflow.

Sources said the IMF has clearly communicated that Pakistan must maintain zero inflow into the power sector’s circular debt during the ongoing fiscal year as part of its reform commitments.

With all planned measures—including rebasing, loss reduction, improved recoveries, and targeted repayments—the government aims to successfully maintain zero net addition to the circular debt by the end of this fiscal year.