ISLAMABAD: Pakistan’s power sector circular debt is set to approach Rs1.9 trillion up from Rs1.689 trillion recorded during the first six months (July–December),2025-26, sources in the Power Planning and Monitoring Company (PPMC) told Business Recorder.
The rising circular debt comes at a time when the country is facing economic pressure amid Middle East tensions and renewed concerns from the International Monetary Fund (IMF), which has termed the issue detrimental to the economy.
According to sources, the circular debt stock stood at Rs1.889 trillion as of February 28, 2026. Of this, liabilities related to power projects established under the China-Pakistan Economic Corridor (CPEC) reached an all-time high of Rs543 billion.
The matter of Chinese Independent Power Producers (IPPs) is expected to feature prominently during the upcoming visit of Deputy Prime Minister and Foreign Minister Senator Ishaq Dar to Beijing.
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The data shows an increase of nearly Rs200 billion in just two months, primarily due to lower recoveries and higher system losses compared to targets set by the National Electric Power Regulatory Authority (Nepra).
The Power Division had earlier committed to the IMF that circular debt would be reduced to Rs1.614 trillion by the end of the current fiscal year (2025-26).
The sources further revealed that circular debt, which stood at Rs2.393 trillion as of June 30, 2024, was initially projected to decline to Rs1.2 trillion by June 2027.
However, the target has now been revised upward to Rs1.346 trillion.
To manage the situation, the government recently approved a Technical Supplementary Grant (TSG) of Rs200 billion to keep the debt within the limits agreed with the IMF. The injection has been structured as equity investment in power distribution companies (Discos) to ease their cash flow constraints.
Over the past six years, the government has addressed circular debt stock of Rs2.4 trillion through refinancing of Rs1.275 trillion at a lower interest rate. This is being serviced through a Debt Service Surcharge (DSS) of Rs3.23 per unit charged to consumers nationwide.
Recovery performance of Discos, which stood at 90 percent as of June 30, 2024, is projected to increase to 97.34 percent by June 2027, compared to an earlier target of 95 percent.
Sharing data up to January 31, 2026, the sources said K-Electric (KE) has failed to clear outstanding dues of Rs145 billion, contributing significantly to the Rs150 billion increase in circular debt flow during the period. Total outstanding liabilities of KE have reached Rs351 billion.
Unreleased subsidies stood at negative Rs34 billion during the period. However, under-recoveries and inefficiencies of Discos showed improvement of Rs45 billion compared to the same period last year (July–January).
Another notable development is the payment of circular debt stock amounting to Rs224 billion, significantly higher than Rs24 billion paid during the corresponding period last year.
Despite these pressures, the sources said that circular debt flow remains within permissible limits and indicators suggest that the stock may not increase further by the end of the fiscal year.
The IMF has reiterated that Pakistan remains committed to achieving energy sector viability and preventing the recurrence of circular debt, while stressing the need for sustained reforms to ensure financial discipline.
The issue is also expected to come under discussion at a public hearing of the National Electric Power Regulatory Authority (Nepra) on Tuesday, during deliberations on the Fuel Charges Adjustment (FCA) for February 2026.
Copyright Business Recorder, 2026
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