Govt. looking to secure loan to overcome circular
debt
The Pakistani government is in talks with
commercial banks for a Rs1.25 trillion ($4.47 billion) loan aimed at addressing
the growing debt within the country’s energy sector, according to the power
minister and the banking association.
This initiative is a key part of efforts to
resolve the persistent debt issues in the energy sector, a priority under the
ongoing $7 billion International Monetary Fund (IMF) bailout, which has played
a crucial role in stabilizing Pakistan’s economy.
Power Minister Awais Leghari confirmed the loan
discussions, stating that the loan would be repaid over a period of 5 to 7
years, though the term sheets have not yet been finalized. The government, as
the largest shareholder in most power companies, faces significant challenges
in addressing the sector's debt amid fiscal constraints.
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To tackle this, the government has increased
energy prices, following IMF recommendations, but still needs to resolve the
accumulated debt.
“We’ve approached several banks, and we’ll see
how many choose to participate. It’s a commercial deal, and banks have the
option to join in, but we believe there is sufficient liquidity in the system,
and banks are interested,” Leghari said.
The government’s primary goal is to reduce
“circular debt”—public liabilities that accumulate in the power sector due to
subsidies and unpaid bills. This year, it plans to address this issue by
eliminating government-guaranteed debt and moving towards a revenue-based
system.
This shift is expected to lower financing
costs, helping the government meet its debt obligations while making debt
servicing more sustainable.
Ammar Habib Khan, an adviser to the power
minister, noted, “Repricing liabilities in this way will lead to greater
efficiency and reduced costs for consumers.”
Zafar Masud, Chairman of the Pakistan Banks
Association, added that the loan would carry a floating interest rate and would
involve the country’s leading banks, along with others that are already part of
the existing loan agreements.
“This loan will help clear the debt from
banks’ balance sheets over the next 4 to 6 years,” Masud said.
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He
also mentioned that over half of the Rs1.25 trillion debt is already recorded
on the banks’ books and is currently being restructured through
self-liquidating facilities, which lack identifiable cash flows to support
them.
Source: Daily Times