Circular debt hits Rs1.84tr

April 28, 2026 (MLN): Pakistan’s power sector circular debt (CD) rose to Rs1.84 trillion in February 2026, up from Rs1.76trn in January 2026, but notably lower than Rs2.53trn recorded in February 2025, according to data compiled by Arif Habib Limited, citing the Ministry of Energy (Power Division).

On a fiscal year-to-date (FYTD) basis, circular debt increased by Rs225bn, significantly higher than the Rs138bn rise in the same period last year.

The data signaled renewed accumulation pressures despite policy interventions.The buildup continues to be driven primarily by distribution companies (DISCOs), whose underperformance contributed around Rs141bn during FYTD.

However, this marks an improvement compared to Rs190bn in the same period last year (SPLY). Encouragingly, under-recoveries have shown visible improvement, suggesting better collection efficiency and loss control relative to previous trends.

A key positive development is the sharp increase in stock payments to Independent Power Producers (IPPs), which reached Rs228bn, compared to just Rs28bn SPLY.

This reflects enhanced liquidity injection into the system, easing payment bottlenecks across the energy chain.

In a notable accounting and structural shift introduced in December 2025, the government added a new “CD financing” line item amounting to Rs694bn, effectively replacing the earlier practice of parking debt in Power Holding Limited (PHL).

Out of this, 660bn was transferred from PHL to bank-based financing and Rs62bn has already been repaid as of February 2026.

This refinancing was carried out at more favourable rates (KIBOR minus 0.9%), aimed at reducing the interest burden and improving debt sustainability.

Interest charges (PHL + IPPs) declined sharply on a yearly basis, indicating relief from refinancing measures. However, loan principal repayments surged, contributing to the overall FYTD increase. 

Other adjustments, including prior-year recoveries, also added upward pressure during the period. 

While headline circular debt remains elevated, the data presents a mixed picture.

On the positive side, recoveries have improved, IPP payments have increased, and refinancing at lower rates has provided some relief.

On the downside, the sector continues to rely heavily on fiscal and banking support, while persistent DISCO inefficiencies remain a key concern.

The coming months will be critical in determining whether operational reforms can sustainably contain circular debt or if structural leakages continue to offset policy gains.

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