The Ministry of Finance has identified the growing circular debt in Pakistan’s energy sector as a significant fiscal risk, as it reached Rs4,700 billion by December 2024. Of this, Rs2,400 billion is attributed to the power sector, while the remaining Rs2,300 billion is linked to the gas sector.
The finance ministry has expressed concern over the lack of a clear strategy to address the issue, stating that the government currently lacks the financial capacity to pay off the circular debt. There is limited potential for tariff adjustments, and the ministry warned that if the problem remains unresolved, it will place a permanent burden on fiscal sustainability, limiting essential development spending and increasing borrowing requirements.
The ministry’s documents also pointed out that the circular debt may lead to further subsidies, bailouts, or even debt restructuring. While the federal budget does not specifically address measures to resolve the circular debt, the ministry emphasized that the government is ultimately responsible for its resolution.
To ensure long-term fiscal stability, the ministry stressed the need for a credible and transparent strategy to prevent and eliminate circular debt, acknowledging its critical role in maintaining fiscal health.