Leghari says circular debt to be eliminated within six years after 'landmark financing deal'

• Debt surged from Rs1.1tr to Rs2.28tr by 2022.
• Financing secured at KIBOR minus 0.9%.
• Rs3.23 surcharge to be phased out gradually.

ISLAMABAD: Federal Minister for Power Awais Leghari on Friday vowed that Pakistan's circular debt crisis will be eliminated within six years under a landmark financing agreement with 18 banks, secured on favourable terms without adding any burden on consumers.

Addressing a press conference, the minister strongly criticised the previous government for worsening the circular debt problem.

He said that when the Pakistan Muslim League-Nawaz (PML-N) left office in 2018, the debt stood at Rs1,100 billion, but it surged to Rs2.28 trillion during the PTI-led government’s tenure by 2022.

Leghari termed circular debt a "curse" for Pakistan, recalling that when the incumbent government took charge last year, the figure had already risen to around Rs2.4 trillion.

The minister detailed that the government achieved savings of Rs242 billion through curbing theft, improving recoveries, and enforcing financial discipline.

Another Rs175 billion relief came through an improving economy and reduced interest rates, while renegotiated contracts with Independent Power Producers (IPPs) saved Rs363 billion. Together, these measures brought a total reduction of Rs780 billion.

He noted that through reforms, IPP contract renegotiations, and favourable banking terms, the circular debt stock has been reduced to Rs1,614 billion as of June 2025. The government has also signed a Rs1.225 trillion financing scheme with 18 banks on concessional terms to further address the crisis.

"This achievement, negotiated transparently, will ensure that within six years there will be no trace of circular debt," Leghari said.

He further stated that the current surcharge of Rs3.23 per unit being paid by consumers would be phased out within five to six years as part of the plan.

Leghari highlighted that the financing, secured at KIBOR minus 0.9% — the first such deal in Pakistan's history — would save 3.5% to 5% in interest costs.

He stressed that the agreement, based on Islamic banking principles, demonstrates confidence of the financial sector in government reforms and had been fully discussed with the International Monetary Fund (IMF).

The minister added that governance reforms in the power sector, particularly through improved performance of Disco boards, are yielding tangible results, with losses decreasing and the burden on industrial and household consumers reducing — up to 38% for industries and 50% for more than 18 million households.

Leghari credited Prime Minister Shehbaz Sharif's leadership and joint efforts of federal institutions and Disco boards, saying their performance was reflected in reduced losses.

He emphasised that eliminating circular debt would not only stabilise the power sector but also strengthen the national economy.

"This is the first time in Pakistan's history that circular debt is being addressed through a structured plan, transparency, and discipline. PM Shehbaz has already formally launched this initiative," the minister concluded.