Energy Sector Circular Debt Spike 1,200% More Devastating Than Last Year

Pakistan’s power sector circular debt stood at Rs. 1.85 trillion as of April 2026, reflecting a modest increase from Rs. 1.84 trillion recorded in February 2026, although the overall stock remained significantly lower than Rs. 2.41 trillion reported a year earlier.

According to data compiled by Arif Habib Limited based on Ministry of Energy figures, circular debt increased by Rs. 240 billion during the first 10 months of fiscal year 2025-26, up 1,233 percent compared with an increase of just Rs. 18 billion during the same period last year.

The rise was primarily driven by the continued underperformance of power distribution companies, commonly known as DISCOs. Distribution losses and under recoveries contributed a combined impact of around Rs. 226 billion during the period, although under recoveries showed notable improvement compared with previous years.

The data also showed a significant increase in payments made to independent power producers (IPPs). Stock payments reached Rs. 236 billion during the period, compared with Rs. 151 billion in the corresponding period last year, indicating improved liquidity across the power sector.

Meanwhile, the government continued implementing its circular debt management strategy through refinancing arrangements. In the December 2025 circular debt report, authorities introduced a separate financing category after shifting debt previously parked in Pakistan Holding Limited (PHL) into bank financing facilities.

As of April 2026, repayments of Rs. 96 billion had been made against this financing arrangement.

The refinancing initiative was designed to reduce borrowing costs by replacing existing liabilities with financing linked to KIBOR minus 0.9 percent.

Despite the increase recorded during the fiscal year, the overall circular debt stock remained more than 23 percent lower than the level recorded in April 2025, reflecting progress in managing the sector’s long-standing financial challenges.