IMF allows govt to borrow Rs1.25trn from banks to cut circular debt: report

The government has received approval from the International Monetary Fund (IMF) to borrow Rs1.25 trillion ($4.5 billion) from domestic banks to reduce its mounting circular debt without impacting its public debt figures, The News reported.  

This approval follows recent policy discussions between Pakistani authorities and IMF officials, who were presented with a comprehensive six-year strategy to address the Rs2.4 trillion debt burden in the country’s power sector.

The IMF’s nod provides the government with much-needed fiscal space by allowing the new borrowing to remain off public books, offering some relief amid ongoing economic challenges. 

To repay the fresh loans, the government will impose a Rs3 per kilowatt-hour debt servicing surcharge (DSS) on electricity bills, expected to generate over Rs300 billion annually. 

The government plans to use a combination of bank loans and proceeds from the surcharge to retire Rs1.5 trillion in debt, along with saving Rs463 billion through renegotiated terms with Independent Power Producers (IPPs).

The government has assured the Fund that better collection practices and improved operational efficiency will prevent further debt accumulation in the future. 

Minister for Power Awais Ahmed Khan Leghari expressed optimism regarding the approval, stating that no violations had occurred and that the borrowing would not affect the country’s debt-to-GDP ratio.