Finance Minister Muhammad Aurangzeb has lauded the Rs1.2 trillion bank loan secured to address Pakistan’s ballooning circular debt, calling it the “largest financing and restructuring transaction” in the nation’s history.
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On Wednesday, the government signed loan agreements worth approximately Rs1.225 trillion with a consortium of 18 banks to clear outstanding dues of Independent Power Producers (IPPs) locked in circular debt. The repayment will be funded through a Rs3.23 per unit surcharge on electricity consumers for six years.
The signing ceremony was held at the Prime Minister’s Office and witnessed virtually by PM Shehbaz Sharif from New York. While no formal announcement was made immediately, ministers confirmed the agreement’s signing. Under the deal, the government has 30 days to request disbursement from banks to ensure timely utilisation and avoid penalties.
The ceremony was later broadcast on national television, featuring addresses by both the prime minister and the finance minister.
Aurangzeb said the financing facility “resolves the structural issues of the power sector” and described it as a “win-win situation” for Pakistan and electricity consumers. Praising all stakeholders, he called the deal a “critical step towards reducing the energy equation.”
PM Shehbaz echoed the sentiment, terming the agreement a “huge success” in tackling a crisis that was “eating up all our resources.” He acknowledged the difficulty of negotiating with IPPs, commending the negotiating team for “delivering at the right time.”
The prime minister also thanked Army Chief Field Marshal Syed Asim Munir for his “behind-the-scenes support.” Looking ahead, Shehbaz outlined key priorities for the power sector, including the privatisation of power distribution companies and addressing chronic line losses, calling them “big challenges we must take on with faith.”
Power Minister Awais Leghari hailed the transaction as a “bold step,” noting that circular debt had long crippled the energy sector. He said the financing scheme was a “landmark initiative to restore the health of the power sector.”
Finance Ministry Statement:
In a separate press release issued on Thursday, the Ministry of Finance called the agreement a “major breakthrough” in addressing one of Pakistan’s most chronic economic challenges.
Aurangzeb said the deal would help “restore fiscal discipline, investor confidence, and energy sector sustainability,” adding that the release of Rs660 billion in sovereign guarantees would inject liquidity into priority sectors including agriculture, SMEs, housing, education, and healthcare.
Under the facility, Rs659 billion will be used to service loans payable by Power Holding Ltd (PHL), while Rs556 billion will settle IPP dues, petroleum sector payments, and subsidy adjustments through a mix of book adjustments and cash settlements.
The consortium of participating banks includes HBL, Meezan Bank, NBP, ABL, UBL, Faysal Bank, Bank Al Habib, MCB, Bank Alfalah, Dubai Islamic Bank, BOP, BankIslami, Askari Bank, Habib Metropolitan Bank, Al Baraka Bank, Bank of Khyber, MCB Islamic Bank, and Soneri Bank.
The Bigger Picture:
Despite this landmark restructuring, Pakistan’s energy sector remains weighed down by more than Rs4.6 trillion in accumulated circular debt, driven by poor recoveries, theft, infrastructure deficiencies, governance failures, and market inefficiencies.
According to the Institute of International Finance (IIF), debt tied to the energy sector accounts for nearly 4% of Pakistan’s GDP, exerting significant pressure on public finances. The IIF warned that this debt continues to fuel fiscal imbalances, crowd out private investment, and divert government resources away from social programmes and infrastructure development — further slowing economic growth.