Pakistan's Ambitious Plan to Tackle Power Sector Debt

Amid financial strain, Pakistan secured an agreement with commercial banks to borrow Rs 1.25 trillion at a reduced interest rate, aiming to address circular debt within the power sector. The agreement, seen as a significant success for Prime Minister Shehbaz Sharif’s administration, received partial endorsement from the IMF.

Pakistan has negotiated a critical agreement with commercial banks to borrow Rs 1.25 trillion at an interest rate below 11 per cent. The loan is intended to address the pressing issue of circular debt affecting the nation's power sector, according to sources reported by The Express Tribune.

This debt, owed to Independent Power Producers (IPPs) due to the government's delayed payments, has driven up electricity prices, challenging the sector's sustainability. The agreement presents a more favorable condition, costing 3 to 5 per cent less than previous financial arrangements, thus reflecting a strategic financial restructuring.

The government, currently disbursing up to 16 per cent to IPPs for overdue payments, has collaborated through a civil-military task force to finalize the loan terms, with plans submitted to the International Monetary Fund (IMF) for endorsement. This initiative is lauded as a vital achievement for Prime Minister Shehbaz Sharif, aiming to curtail the flow of circular debt over the next few years.