Pakistan Pauses $36B Power Debt Plan

The Government of Pakistan has placed its proposed $36 billion circular debt refinancing plan for the power sector on hold following indications from key international lenders and Saudi Arabia regarding limited capacity to extend financing under the proposed concessional terms.

The refinancing framework, which had been presented to multilateral institutions including the World Bank and the Asian Development Bank, was designed to secure long-term funding over a 13-year horizon commencing FY2027. The objective of the plan was to address the sector’s mounting circular debt burden while facilitating a reduction in electricity tariffs, particularly for industrial consumers.

According to official sources, the proposal envisaged concessional financing at approximately 2% from international financial institutions, alongside parallel discussions with Saudi Arabia for potential funding at around 1%. However, lenders have reportedly cited exposure limitations, while Saudi authorities have not yet provided formal confirmation regarding participation.

Under the proposed structure, annual refinancing requirements were projected to range from $4.40 billion in FY2027 to approximately $1.21 billion by FY2039. The plan further anticipated a gradual reduction in industrial electricity tariffs, potentially lowering rates to below 9 cents per kWh during the initial years, contingent upon securing low-cost financing.

At present, the circular debt stock within the power sector is estimated at approximately Rs1.9 trillion. The government aims to reduce this to Rs1.614 trillion by June 2026 through a combination of measures, including borrowing from commercial banks and the continuation of a debt servicing surcharge of Rs3.23 per kWh over a six-year period.

Officials have indicated that while financing at higher interest rates remains a viable alternative, authorities are reluctant to proceed on such terms due to the potential adverse impact on electricity tariffs and broader fiscal sustainability considerations.