Government signs Rs1.2 trillion agreement with banks to resolve circular debt
In a historic step toward resolving Pakistan’s longstanding energy sector challenges, the federal government on Thursday signed a Rs1.225 trillion Circular Debt Financing Facility with a consortium of 18 commercial banks. The agreement is aimed at significantly reducing the country’s mounting circular debt and initiating structural reforms in the power sector.
Prime Minister Shehbaz Sharif, speaking via video link from New York, hailed the initiative as Pakistan’s first comprehensive plan to address circular debt in an “effective and structured” manner. Calling it a "historic breakthrough," the Prime Minister said the initiative will pave the way for long-term sustainability in the energy sector.
“For the first time in Pakistan’s history, circular debt—long a drain on our national resources—is being tackled systematically,” PM Shehbaz stated during the virtual signing ceremony.
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to sign Rs1.225 trillion agreement with 18 banks to tackle circular debt
The signing event took place at the Prime Minister’s House in Islamabad, attended by federal ministers, key officials, financial regulators, power sector CEOs, and representatives from domestic and international financial institutions.
Plan details & key stakeholders
The financing facility—negotiated over months—features highly favorable terms, including:
- Loan size: Rs1.225 trillion
- Interest rate: KIBOR minus 0.9%
- Tenure: 6 years
- Revenue stream: Debt Service Surcharge (DSS)
- Savings: Estimated Rs350 billion in reduced late payment surcharges
Of the total amount, Rs659 billion will be used to retire loans of Power Holding Limited (PHL), while the remaining funds will be paid to Independent Power Producers (IPPs) and Government Power Producers (GPPs), ultimately benefiting electricity consumers through cost savings.
Government & military collaboration
Prime Minister Shehbaz praised the collaborative effort of various institutions in finalizing the plan, especially the Power Division, Petroleum Ministry, and a specially formed Task Force.
He paid tribute to former caretaker energy minister Mohammad Ali, Power Secretary, and Lieutenant General (R) Muhammad Zafar Iqbal—head of the Task Force—for their “tireless negotiations” with IPPs.
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The Prime Minister also acknowledged the “behind-the-scenes support” of Chief of Army Staff Field Marshal Syed Asim Munir, calling it a key pillar in enabling reform momentum.
Banking sector & regulatory support
Zafar Masood, President of the Bank of Punjab, along with leadership from Meezan Bank, Habib Bank, and others, were recognized for their instrumental roles. The State Bank of Pakistan and Federal Board of Revenue were also commended for facilitating the agreement.
Representatives from banks under the COCPPA umbrella formally endorsed the deal during the ceremony.
Path forward: Reforms, privatization, and loss reduction
Senior officials from the Power and Petroleum Divisions emphasized the importance of follow-up measures, including:
- Privatization of power distribution companies (DISCOs)
- Reducing technical and commercial losses in the grid
Global recognition and international partnerships
Prime Minister Shehbaz noted growing international confidence in Pakistan's economic direction. He shared that IMF Managing Director had recently praised the government’s commitment to structural reforms during a meeting in New York:
“This is unprecedented recognition,” he said. “We must continue with courage and confidence to build on this momentum.”
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The Rs1.2 trillion financing deal marks a bold and much-needed step toward reforming Pakistan’s energy sector. With structured debt retirement, active stakeholder involvement, and international recognition, the initiative lays a solid foundation for long-term economic stability and energy sector resilience.
Source: The Nation