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Pakistan‘s Circular Debt Reaches Rs1.7 Trillion in Q1 FY26
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Islamabad – Pakistan’s persistent circular debt crisis has deepened, reaching Rs1.7 trillion (approximately $6 billion USD) in the first quarter of fiscal year 2026. This considerable increase places immense strain on the nation’s energy sector and overall economic stability. The escalating debt is primarily attributed to inefficiencies in power generation, transmission, and distribution, coupled with delayed payments between various entities within the energy supply chain.
the circular debt, a recurring problem for Pakistan, represents the accumulated financial losses of state-owned power companies. These losses stem from factors like unpaid electricity bills, transmission losses, and subsidies that are not fully recovered. The situation is alarming and requires immediate, comprehensive reforms
, stated a senior official within the Ministry of Energy, speaking on condition of anonymity.
Key data & Timeline
| Period | Circular Debt (Rs trillion) | USD Equivalent (approx.) |
|---|---|---|
| Q1 FY25 | 1.5 | $5.3B |
| Q4 FY25 | 1.6 | $5.6B |
| Q1 FY26 | 1.7 | $6.0B |
Contributing Factors
several factors contribute to the growing circular debt. these include insufficient revenue collection from consumers, high power generation costs, and the failure to implement effective cost-recovery mechanisms. Furthermore, political interference and a lack of transparency in the energy sector exacerbate the problem.The government has previously attempted to address the issue through various measures, including tariff increases and subsidy reductions, but these efforts have yielded limited success.
Did You know? …
The term ‘circular debt’ refers to a cycle of non-payment within the energy sector, where power producers aren’t paid by distribution companies, who in turn don’t receive payments from consumers or the government.
Government Response & Future Outlook
The Ministry of Finance is reportedly exploring options to manage the debt, including seeking loans from commercial banks and negotiating payment plans with power producers. However,analysts warn that these are temporary solutions and that basic reforms are needed to break the cycle. Without addressing the root causes of the problem, the circular debt will continue to grow, posing a serious threat to Pakistan’s economic stability
, according to a report by the State Bank of Pakistan [citation needed – SBP reports are generally available but a specific report wasn’t cited in the source].
Pro Tip: …
Understanding the circular debt requires recognizing the interconnectedness of the power generation,transmission,distribution,and consumer payment systems.
Impact on the Economy
The rising circular debt has several negative consequences for the Pakistani economy. It reduces the government’s fiscal space, limits investment in the energy sector, and increases the cost of electricity for consumers. It also discourages private sector participation in the power sector, hindering the development of new power generation projects. The situation is further complicated by Pakistan’s ongoing economic challenges, including high inflation and a balance of payments crisis.
“The circular debt is a systemic issue that requires a holistic and long-term solution,” – Dawn News Editorial, November 6, 2025.
The government’s ability to address the circular debt will be crucial for ensuring the sustainability of Pakistan’s energy sector and promoting economic growth. Continued inaction could lead to further deterioration of the power sector and exacerbate the country’s economic woes.
What long-term strategies do you think Pakistan shoudl adopt to sustainably resolve its circular debt crisis? Share your thoughts in the comments below!
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