Power sector circular debt exceeds IMF target by Rs221 billion, reaches Rs1.835 trillion

Pakistan’s power sector circular debt stood at Rs1.835 trillion at the end of June 2026, exceeding the Rs1.614 trillion ceiling agreed with the International Monetary Fund (IMF) by Rs221 billion, Business Recorder reported. 

Officials attributed the missed target mainly to around Rs200 billion in unpaid power purchase dues from K-Electric and weaker-than-expected financial performance by several distribution companies.

One official said the sector faced an overall cash shortfall of about Rs300 billion by June 30 because expected payments from K-Electric and some DISCOs did not materialise.

The June-end debt figure remained above target despite cabinet-approved adjustments against K-Electric’s subsidy claims.

The IMF had projected that lower international fuel prices, improved bill recoveries, reduced technical losses and declining interest rates would generate subsidy savings and cut circular debt by Rs779 billion to Rs1.614 trillion, equivalent to 1.4% of GDP, by June 30.

However, the Power Division had already warned the Economic Coordination Committee that circular debt had reached Rs1.924 trillion by May 31, including Rs873 billion owed to banks under circular debt financing.

The Division said Rs893 billion had been allocated for power sector subsidies. Of this, Rs257 billion was earmarked under Finance Division Demand No. 45 for payments to government power plants and independent power producers as government equity.

Only Rs105 billion had been released, leaving Rs152 billion to be transferred to the Central Power Purchasing Agency-Guaranteed before the fiscal year ended.

The Power Division sought a Technical Supplementary Grant rather than additional fiscal support, arguing that the funds were needed to bring the debt stock closer to targets under the Circular Debt Management Plan and commitments made to the IMF.

It also proposed diverting Rs97.649 billion left under K-Electric’s Tariff Differential Subsidy head to the Inter-DISCO Tariff Differential account. CPPA-G and the Pakistan Power Management Company supported the proposal and called for all budgeted subsidies to be released before June 30.

Two options were presented to the ECC. The first involved releasing the full Rs97.649 billion as an advance against future tariff differential claims and adjusting Tribal Areas Electric Supply Company arrears of Rs44.198 billion against outstanding subsidy advances.

The second proposed releasing Rs53.451 billion as an advance subsidy and allocating Rs44.198 billion separately for TESCO arrears.

The ECC partially approved the Power Division’s June 16 summary on the release of the Rs152 billion grant and budget reappropriation. It allowed Rs54.451 billion after adjusting Rs97.549 billion from the total amount.

During the meeting, the ECC was told that K-Electric’s unpaid dues had materially added to circular debt. It directed the Power Division to pursue the legal case after the High Court’s decision in consultation with the Ministry of Law and Justice and the Attorney General.

Sources said the Power Division was actively pursuing the matter and expected a court ruling during July.