Pakistan signs PkRs 1.2 trillion finance deal with banks consortium for power sector debt

Cash-strapped Pakistan on Thursday signed a PkRs 1.2 trillion financing agreement with a consortium of 18 banks - described as the largest restructuring deal - to address the country's ballooning power sector debt.

The signing ceremony is being hailed as a breakthrough in tackling the circular debt crisis, which has swelled to nearly Pakistani rupees (PkRs) 2.4 trillion - 2.1 per cent of the GDP, according to an official statement.

The signing ceremony with the consortium comprising Pakistani and foreign banks was held in Islamabad and witnessed virtually by Prime Minister Shehbaz Sharif from New York, where he is attending the 80th session of the UN General Assembly.


Sharif, in his remarks on the occasion, termed the agreement a "significant milestone" in efforts to curb the mounting debt, crediting a task force, created for the purpose, for "fulfilling its responsibilities in an excellent manner."

He said that during a recent meeting, the International Monetary Front (IMF) managing director praised the government's reform agenda.

He stressed that the next step would be the privatisation of power distribution companies (DISCOs) and tackling the challenge of line losses, urging officials to move forward with "confidence and firm resolve."

Finance Minister Muhammad Aurangzeb described the agreement as the largest restructuring deal in Pakistan's history.

He said the financing facility is a "win-win situation for all" and will directly support efforts to resolve the circular debt crisis. He emphasised that the benefits of structural reforms in the power sector will ultimately reach consumers.

According to an official statement, the signing ceremony at the prime minister's house was hailed as a breakthrough in tackling the circular debt crisis, which has strained the energy supply chain, shaken investor confidence and swelled to nearly PkRs 2.4 trillion - 2.1 per cent of the GDP.

The circular debt is described as that owed by the government to the independent power producer (IPPs), which produce electricity and sell it to the government for onward transmission to the public and industry.

However, despite massive increase in the power tariff, the debt continued to accumulate over the years due to power losses, theft, corruption and lopsided deals with the IPPs, which have made billions of rupees while the masses were crushed under the electricity bills.

The government has promised that the deal would help to tackle the circular debt on a permanent basis but many feel skeptical about the claim.