The federal cabinet has approved a major plan to control the growing circular debt in Pakistan’s power sector. According to official sources, the government will borrow Rs 1,275 billion from banks at low interest rates to settle outstanding payments.
This large loan will help pay off the dues of Independent Power Producers (IPPs) and will be added to the Power Holding Company’s liabilities. The move is seen as an urgent step to bring financial stability to the struggling energy sector, which has long been burdened by unpaid bills and inefficient systems.
Sources further revealed that the loan will be repaid over six years, making it easier for the government to manage the financial pressure. However, it will still require an annual payment of Rs 323 billion to the banks, ensuring the debt stays within scheduled limits.
The approval comes at a time when Pakistan faces serious economic challenges, especially in the energy sector. Reducing circular debt has become a top priority for the government to maintain power supply and improve investor confidence.
This decision reflects the government’s strategy to handle energy debt through financial restructuring, instead of putting pressure on consumers through higher electricity prices. However, experts warn that long-term solutions will require reforms beyond loans.