Pakistan’s government is negotiating a 1.25 trillion rupee ($4.47 billion) loan with commercial banks to tackle its mounting energy sector debt. Power Minister Awais Leghari confirmed that the loan, a key part of the IMF-backed economic reforms, will be repaid over 5 to 7 years. The initiative aims to stabilize the power sector and improve financial efficiency.
To address the “circular debt” crisis, Pakistan has already increased energy prices as advised by the IMF. The government now plans to replace state-backed debt with a revenue-based system, lowering financing costs and easing the burden on public finances. Officials believe this will create a more sustainable energy sector.
The Pakistan Banks Association chairman, Zafar Masud, stated that top banks are expected to participate, with interest rates based on a floating exchange system. More than half of the targeted debt is already on banks’ books and will be restructured through self-liquidating facilities. This strategy aims to clear outstanding energy debt within the next 4 to 6 years.
Officials highlight that this restructuring will bring financial efficiency and ultimately benefit consumers by reducing costs. With sufficient liquidity in the banking system, Pakistan is optimistic that this loan will help stabilize the power sector and support long-term economic recovery.