Govt secures Rs1.275tr at KIBOR -0.9% to resolve circular debt: Khurram Schehzad

June 21, 2025 (MLN): The government has successfully secured a Rs1.275 trillion ($4.5 billion) Shariah-compliant financing package at a concessional rate of 3-month KIBOR -0.9%, a rate agreed by the IMF to address Pakistan’s long-standing circular debt crisis, without imposing any new burden on electricity consumers, Advisor to the Finance Minister Khurram Schehzad said in his latest post on X. 

"In what is being hailed as a landmark financial and structural breakthrough, Pakistan has tackled the longstanding issue of Circular Debt in the country's power sector, without passing on additional burden to electricity consumers," the post reads. 

The financing has been arranged through a consortium of 18 domestic banks, including Meezan Bank, HBL, NBP, and UBL, under the guidance of the Task Force on Energy formed by Prime Minister Shehbaz Sharif, he further informed. 

The initiative is being hailed as a landmark move in power sector reform, with no additional public debt or surcharge to be introduced.

He further stated that repayments will be made through the existing Debt Service Surcharge (DSS) of around Rs3 per unit, which will remain in place for the next 5–6 years.

Out of the total package, Rs683 billion will be used to refinance Power Holding Limited’s debt, while the remaining amount will help clear overdue payments to Independent Power Producers (IPPs).

The new arrangement significantly reduces the cost of liabilities previously carrying high interest rates ranging from KIBOR +2% to +4.5%.

The structure of the facility includes:

• Limit: PKR 1,275 billion
  
• Tenor: 6 years | 24 quarterly instalments
  
• Interest Rate Cap: 14%
  
• Repayment Source: Existing DSS

"No additional public debt burden will arise from this, and importantly, no new surcharge will be imposed on consumers," the post further reads.

He also mentioned the efforts of Mr. Muhammad Ali, Advisor on Privatization for being instrumental all along and playing a key role in conceptualizing, structuring and negotiating this landmark deal, backed by Lt. General Zafar Iqbal, National Coordinator of Task Force, supporting the Minister of Power, Mr. Awais Ahmad Khan Leghari and his team.

This was all done under the thorough supervision, leadership and professional guidance of the Federal Minister of Finance & Revenue, Senator Muhammad Aurangzeb, firmly supported and endorsed by Secretary Finance, Mr. Imdad Ullah Bosal, he added.

Their combined efforts brought together energy policy, fiscal discipline, and financial innovation into a unified solution that delivers both relief and reform.

He further informed that the government is implementing enhanced governance and oversight, technical loss reduction measures, improved billing and revenue recovery, Privatization and operational restructuring of DISCOs for long-term viability to prevent further buildup of circular debt.

This bold move indicated the government’s commitment to structural reform, credibility with financial markets, and dedication to easing pressure on both consumers and the national budget.

It is a systemic solution, backed by clear cash flow commitments, the Fund's concurrence, and zero burden on the public, he noted. 

What is Circular Debt (CD)?

CD happens when electricity consumers, power companies, and the government don’t settle payments on time, causing a chain of unpaid bills that builds up over time and weakens the entire power system.

This results in a huge pile-up of inter-corporate debt that runs into the thousands of billions.

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