The circular debt of Pakistan’s power sector has increased significantly during the current fiscal year, raising questions about the effectiveness of the government’s measures to control this crisis.
According to official documents shared with Daily Times, the circular debt increased by Rs 224 billion during the first eight months of the fiscal year 2025-26 (July 2025 to February 2026). By February 2026, the circular debt had reached Rs 1,837 billion, up from Rs 1,614 billion in June 2025. The data shows that the debt burden continues to increase despite financial reforms and agreements with commercial banks.
In September 2025, the government signed agreements with banks to reduce the circular debt by Rs 1,225 billion. However, just five months after these agreements, the debt increased instead of decreasing.
Between October 2025 and February 2026 alone, the circular debt increased by Rs 144 billion, indicating long-standing structural problems in the power sector. By September 2025, the circular debt had already reached Rs 1,693 billion, indicating that its upward trend is continuing.
The continued rise in circular debt reflects deep and long-standing problems in the energy sector, including high transmission and distribution losses, weak bill collection rates, delayed tariff adjustments, and overreliance on subsidies. In addition, capacity payments to IPPs and rising fuel prices have also worsened the situation.
The rise in circular debt poses a serious threat to Pakistan’s fiscal stability and energy security. It puts pressure on government finances, constrains investment in the power sector, and increases the risk of rising electricity prices and potential load-shedding for consumers.
Despite government measures and fiscal agreements, Pakistan’s power sector’s circular debt continues to rise, indicating that comprehensive and lasting reforms are essential to address the root causes of this crisis.