ISLAMABAD — Pakistan has made one of its boldest financial moves yet, signing a massive Rs1.225 trillion deal with banks to ease the country’s long-running circular debt problem. Officials say it’s the biggest financing and restructuring agreement in the nation’s history.
The deal was struck with 18 commercial banks, including HBL, NBP, UBL, Allied Bank, MCB, Meezan Bank, Bank Alfalah, and Dubai Islamic Bank. The money will help refinance costly loans and unpaid bills in the power sector.
Instead of paying heavy interest rates to Independent Power Producers (IPPs) and Power Holding Private Limited (PHPL), the government will now pay a lower rate of KIBOR minus 0.9%.
To fund this, electricity consumers will face a new Rs3.23 per unit surcharge, spread out over six years. Out of the total, Rs659 billion will go toward retiring PHPL loans, while Rs565 billion will be used to clear dues of IPPs, petroleum companies, and subsidy adjustments.
Who Benefits From the Deal?
Financial experts say this agreement will cut borrowing costs by 1.5% to 5%. One of the biggest winners is Pakistan State Oil (PSO), which has large receivables waiting to be cleared. Thanks to this deal, PSO is expected to see a major financial boost worth about Rs100 per share.
Since December 2023, PSO has already recovered Rs75 billion from SNGPL and Rs14.8 billion from Hub Power Company. It also reduced its foreign exchange borrowings by Rs89 billion. With falling interest rates, PSO’s finance costs dropped from Rs52 billion in FY24 to Rs34 billion in FY25—and more relief is on the way.
Other companies are also set to gain. Hub Power Company is owed Rs53 billion, while Thar Energy Limited and ThalNova Power Thar are waiting on Rs12 billion and Rs11 billion, respectively.
Engro Powergen Thar Limited has Rs50 billion stuck in receivables, and firms like Lucky Cement, Fauji Fertilizer, and Thal Limited also stand to benefit.
The Bigger Problem Still Remains
Despite this breakthrough, Pakistan’s circular debt crisis isn’t over. The country still carries a massive Rs4.6 trillion debt burden, nearly 4% of GDP.
Experts say the problem goes beyond loans and repayments—it’s a structural issue. Waqas Ghani, Head of Research at JS Global Capital, said: “This deal is a step in the right direction, but unless recoveries are enforced and electricity pricing reflects actual costs, the problem will keep coming back.”
Syed Zafar Abbas from Zahid Latif Khan Securities agreed that the deal is a game-changer, but warned that better management is needed to stop history from repeating itself.
He pointed out that the real issue is the gap between electricity supply and revenue recovery, which forces the government to cover the losses.
While challenges remain, analysts believe this record-breaking agreement is an important first step. If managed carefully, it could give Pakistan’s struggling energy sector the reset it desperately needs.
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