Pakistan’s power sector circular debt saw a sharp decline in FY25, but the relief proved short-lived as liabilities surged by Rs. 228 billion within months, according to the Pakistan Electricity Review 2026.
The report shows circular debt fell 32.5 percent year-on-year to Rs. 1.61 trillion by June 2025, down from Rs. 2.39 trillion a year earlier. However, the trend reversed quickly. By February 2026, circular debt had risen again to Rs. 1.838 trillion, up by Rs. 228 billion.
The report points to rising distribution company losses, legacy power purchase agreements, tariff shortfalls, and operational inefficiencies as key drivers of renewed debt accumulation.
The report warns that reliance on the Debt Service Surcharge remains fragile, especially if electricity demand weakens or borrowing costs increase.
The report concludes that the FY25 decline in circular debt was driven by temporary financial clean-up measures rather than any fundamental reform of the sector’s underlying business model. So it wasn’t a surprise that the debt spiked again.
Consumers contributed Rs. 233 billion in FY25 toward debt servicing.
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