Pakistan’s power sector circular debt is projected to surge to a record Rs2.8 trillion by the end of the current fiscal year 2024-25.
According to sources in the Ministry of Energy, estimates show that the gross addition to the circular debt will reach Rs417 billion in FY25, even after a 51% raise in power tariff in July.
As per news reports, the circular debt, already at Rs2.383 trillion as of June, exceeded the threshold agreed with the International Monetary Fund (IMF) and the cap approved by the federal cabinet under the Circular Debt Management Plan 2023-24.
The government is expected to allocate Rs381 billion in subsidies in an effort to cap the debt at Rs2.42 trillion by June 2025. However, achieving these debt reduction targets has proven difficult for the Power Division, which has consistently missed its goals set by the IMF and the cabinet.
The average electricity cost for residential and commercial consumers has now risen to Rs64-72 per unit, including taxes and surcharges.
The Ministry of Energy’s Circular Debt Management Plan projects the debt to climb by Rs245 billion to Rs2.63 trillion by the end of the first quarter (July-September) of FY25. The increase is largely attributed to low subsidy payments, estimated at only Rs12 billion for the quarter.
The debt is expected to reach over Rs2.7 trillion by December, adding Rs330 billion in the first half of the fiscal year. By March 2025, the debt could peak at Rs2.8 trillion, but the Ministry of Finance is expected to inject Rs381 billion in subsidies, reducing the debt to Rs2.42 trillion by the end of FY25. Despite this, there will be a net addition of Rs36 billion to the overall debt.
Last fiscal year, despite a commitment to prevent any increase in the circular debt stock, the debt grew to Rs2.383 trillion by June, despite a tariff increase of Rs8 per unit and substantial subsidies.
