To tackle the country’s mounting circular debt of Rs. 2.381 trillion, the government is negotiating with banks to finalize a term sheet for borrowing Rs. 1.24 trillion.
Officials involved in the discussions revealed that the discount rate has dropped significantly, from 22% to 12%, creating an opportunity for the government to secure loans at more favorable terms.
“The discount rate may decline further in the coming months, and the authorities are keen to take advantage of this situation by borrowing Rs1.24 trillion,” said one official. The government aims to finalize the term sheet before the arrival of the International Monetary Fund (IMF) mission, according to a report by a national daily.
The talks are being led by the State Bank of Pakistan (SBP) governor and the finance minister, who are negotiating with banks to secure the loan at an interest rate of 6-7% for a seven-year term. However, banks are reportedly pushing for a KIBOR+1 rate. Once finalized, the loan will be repaid by electricity consumers through the existing debt servicing surcharge of Rs3.23 per unit in the electricity tariff.
This development comes as Pakistan prepares to host two IMF missions in the coming weeks. The first mission will focus on climate financing, while the second will conduct the first review of the country’s progress under the $7 billion Extended Fund Facility (EFF).
Officials also highlighted progress in reducing the circular debt. Out of the total Rs2.4 trillion, Rs720 billion has already been settled. This includes payments to six independent power producers (IPPs) whose contracts were terminated and 15 IPPs that transitioned to the “take and pay” model. The government has settled Rs450 billion with IPPs, of which Rs300 billion has been paid, while Rs150 billion in late payment surcharges (LPS) has been waived. Additionally, Rs286 billion in dues owed to WAPDA have been cleared without interest payments.
The resolution of circular debt is expected to ease pressure on the power sector, which is being prepared for privatization. Distribution companies (Discos) are also being privatized as part of broader reforms to open the power market to private players.
