Pakistan Misses IMF Target to Contain Power Sector Circular Debt

Pakistan has failed to meet its commitment under the International Monetary Fund (IMF) program to reduce the power sector’s circular debt to Rs. 1.614 trillion by the end of fiscal year 2025-26, with the outstanding stock reaching Rs. 1.835 trillion,

According to a report by Business Recorder, the government officials attributed the shortfall primarily to K-Electric’s unpaid power purchase dues of around Rs. 200 billion and the weak financial performance of several power distribution companies (DISCOs). One official said the government missed the target by about Rs. 300 billion, making it impossible to reduce the annual circular debt flow to zero.

The IMF had projected that lower international fuel prices, improved bill recoveries, reduced transmission losses, and lower interest rates would help bring circular debt down to the agreed target by June 2026.

However, the Power Division later informed the Economic Coordination Committee (ECC) that circular debt had already climbed to Rs. 1.924 trillion by the end of May 2026, including Rs. 873 billion owed to banks under circular debt financing.

To meet its commitments, the Power Division sought a Technical Supplementary Grant (TSG) of Rs. 152 billion and proposed reallocating Rs. 97.649 billion from K-Electric’s Tariff Differential Subsidy allocation to support cash flows in the power sector. The ECC partially approved the proposal, allowing Rs. 54.451 billion after adjusting the available funds.

The Power Division also told the ECC that K-Electric’s outstanding dues have significantly contributed to the buildup of circular debt. The committee directed the ministry to actively pursue the matter in court following a High Court ruling, with officials expressing hope that the case will be decided later this month.

Circular debt remains one of Pakistan’s biggest structural economic challenges, straining the power sector’s finances, increasing government subsidy requirements, and remaining a key reform area under the country’s IMF program.