Pakistan shelves $36 billion power debt refinancing plan amid funding constraints

Pakistan has put its $36 billion power sector circular debt refinancing plan on hold after international lenders and Saudi Arabia signalled limited capacity to provide funding on proposed terms, Business Recorder reported, citing officials in the power sector.

The plan, which was shared with institutions including the World Bank and the Asian Development Bank, aimed to secure financing over 13 years starting from FY2027 to manage the sector’s debt burden and reduce electricity tariffs, particularly for industry.

Officials said the proposal envisaged concessional borrowing at around 2% from international financial institutions, while discussions with Saudi Arabia explored financing at about 1%. However, lenders indicated constraints due to country exposure limits, while Saudi Arabia has yet to formally respond.

Under the proposal, annual refinancing requirements ranged from $4.40 billion in FY2027 to $1.21 billion by FY2039. The plan also projected a gradual reduction in industrial electricity tariffs, with rates expected to fall below 9 cents per kWh in the initial years if low-cost financing was secured.

The circular debt stock in the power sector currently stands at around Rs1.9 trillion. The government aims to bring it down to Rs1.614 trillion by June 2026 through measures including borrowing from commercial banks and continuation of a debt service charge of Rs3.23 per kWh over the next six years.

Officials said financing at higher interest rates remains an option, but authorities are reluctant to proceed on those terms due to the impact on tariffs and fiscal sustainability.