Pakistan and the International Monetary Fund (IMF) have failed to reach an agreement on a proposed Rs. 1.7 trillion plan to reduce the country’s gas sector circular debt, with negotiations now expected to resume in September.

According to sources, virtual discussions between the two sides ended without a breakthrough after differences emerged over the structure of the proposed settlement framework.

The IMF has asked Pakistan to include losses incurred by gas utilities as part of the sector’s circular debt and to classify unrecoverable receivables as losses before any recapitalization of state-owned gas companies.

Officials from the Petroleum Division have raised reservations over these conditions, arguing that several aspects of the IMF’s proposal require further deliberation. As a result, both sides agreed to continue negotiations later this year.

Pakistan’s gas sector circular debt has now risen to around Rs. 3.3 trillion, highlighting the growing financial stress facing the energy sector.

The government is expected to revise its settlement plan in consultation with the IMF before fresh talks begin in September.

The proposed framework is intended to address the mounting liabilities that have weighed on the gas sector for years. The debt has accumulated due to below-cost gas tariffs, high unaccounted-for gas (UFG) losses, delayed subsidy payments, RLNG pricing gaps, and weak recovery of dues by state-owned gas utilities.

The Petroleum Division is also working on broader reforms to improve bill recoveries, reduce system losses, and restructure liabilities as part of its long-term strategy to restore the sector’s financial sustainability.