Power Division acknowledges Rs61bn increase in circular debt

ISLAMABAD: The Power Division has acknowledged that Pakistan's power sector circular debt increased by Rs61 billion during FY2025-26 to Rs1.675 trillion, reversing the previous year's sharp decline despite continued improvements in the financial performance of power distribution companies (DISCOs).

However, sources said the increase meant Pakistan fell short of its commitment made during negotiations with the International Monetary Fund (IMF) to maintain a zero-inflow position and keep the power sector's circular debt at around Rs1.6 trillion.

According to official figures, the power sector's circular debt had declined from Rs2.393 trillion in FY2023-24 to Rs1.614 trillion in FY2024-25, reflecting a reduction of Rs779 billion over the previous fiscal year.

The Power Division said the federal government had allocated Rs893 billion for the power sector in the FY2025-26 budget. However, the allocation was subsequently reduced by Rs98 billion, affecting budgetary payments to the sector.

According to the division, had the power sector received the entire allocated amount, the circular debt would have declined further to Rs1.577 trillion. Instead, the reduction in budgetary support resulted in a Rs61 billion increase, taking the circular debt stock to Rs1.675 trillion during the current fiscal year.

The division maintained that the increase in circular debt did not reflect deterioration in the sector's operational performance, citing continued improvement in the financial position of distribution companies.

Official data showed that DISCO losses declined from Rs591 billion in FY2023-24 to Rs397 billion in FY2024-25, a reduction of Rs193 billion. During the current fiscal year, losses were further reduced to Rs326 billion, bringing the cumulative reduction over two years to Rs265 billion.

The Power Division said the continued decline in distribution losses demonstrates that reforms in the electricity sector are yielding positive results. It added that the rise in circular debt was driven by fiscal factors rather than operational shortcomings and reaffirmed its commitment to implementing reforms aimed at ensuring a financially sustainable and reliable power sector.