Govt approves plan to cut power sector debt by Rs1.27tr

June 18, 2025 (MLN): In a major policy move, the federal cabinet, under the chairmanship of Prime Minister Shehbaz Sharif, has approved a comprehensive plan aimed at reducing Pakistan’s longstanding circular debt in the energy sector.

According to official sources, the cabinet has greenlit the Ministry of Energy’s proposal to curtail circular debt through structural reforms and financial settlements.

As per the approved plan, a significant Rs1.27 trillion will be recovered from commercial banks, marking a crucial step toward easing the country’s financial burden in the energy chain.

The recovery of these funds will be executed under a phased strategy spanning six years, with around Rs323 billion to be paid annually, and the government aims to return the borrowed amount to the commercial banks within the stipulated timeline.

The circular debt crisis has long plagued Pakistan’s power sector, disrupting cash flows and undermining investor confidence.

The cabinet’s approval has signalled renewed urgency in resolving one of the country's most persistent fiscal challenges.

The repayment and circular debt recovery will be collected from electricity consumers through a surcharge.

The issue of circular debt has long strained Pakistan’s energy sector, impacting liquidity and reliability.

This decision is seen as a long-overdue step toward structural reform and fiscal discipline in the sector. 

Sources also confirmed that the government is now turning its attention to addressing circular debt in the gas sector.

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