Pakistan makes Rs1.275 trillion Islamic financing deal to resolves circular debt issue
In a landmark financial move, the
Government of Pakistan has tackled the country’s persistent circular debt
crisis through a record-breaking Rs1.275 trillion Islamic financing arrangement
with 18 commercial banks.
Khurram Shehzad, Adviser to the
Finance Minister, announced the development, describing it as a cornerstone of
Prime Minister Shehbaz Sharif’s broader energy sector reforms.
He confirmed that the agreement will
eliminate Rs1.275 trillion in circular debt—a long-standing burden on the power
sector. Of the total amount, Rs683 billion will be allocated to clear
liabilities of the Power Holding Company, while Rs592 billion will be paid to
Independent Power Producers (IPPs).
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set to get loan of Rs1.275 trillion from banks to resolve circular debt
The financing, secured at a
concessional rate 0.9% below the three-month KIBOR, supports Pakistan’s goal of
transitioning to a fully interest-free banking system by 2028.
Importantly, Shehzad clarified that
the deal would not impose new surcharges on electricity consumers. The existing
debt service surcharge of Rs3 per unit will continue for the next five to six
years, ensuring no additional burden on households and industries.
The government will repay the loan
in 24 quarterly installments, with a yearly repayment cap of Rs323 billion. This
structured repayment strategy is aimed at avoiding future build-up of circular
debt and reducing fiscal stress on the national budget.
This initiative is part of broader
reforms under Pakistan’s $7 billion IMF program, which prioritizes reducing
circular debt and improving energy sector efficiency.
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The agreement also marks a
significant step in expanding Islamic finance, which now comprises nearly 25%
of Pakistan’s banking sector.
Calling it a “historic
breakthrough,” Khurram Shehzad praised the Shehbaz Sharif-led administration
for its bold action in resolving one of the country’s most critical economic
challenges.
Source: ARY News