Pakistan’s power sector circular debt recorded a sharp reduction in FY25, but the improvement was quickly reversed as liabilities increased again within months, according to the Pakistan Electricity Review 2026.

The report states that circular debt declined by 32.5% year-on-year to Rs1.61 trillion by June 2025, down from Rs2.39 trillion in the previous year. However, this relief did not last. By February 2026, the stock of circular debt had climbed back to Rs1.838 trillion, reflecting an increase of Rs228 billion in a short period.

The report attributes the renewed buildup to persistent structural pressures, including rising losses in distribution companies, unresolved legacy power purchase agreements, tariff gaps, and continued operational inefficiencies across the system.

It also highlights that dependence on the Debt Service Surcharge remains vulnerable, particularly if electricity demand weakens or financing costs rise.

Consumers continued to bear a significant burden, contributing around Rs233 billion in FY25 toward debt servicing.

The report concludes that the FY25 decline was largely the result of temporary financial adjustments and accounting measures rather than deep structural reforms, which is why the debt began rising again shortly after the reported improvement.