Pakistan has decided to pause its $36 billion plan to refinance circular debt in the power sector after facing difficulties in securing funds from international lenders and Saudi Arabia.
According to officials, the proposal was shared with institutions like the World Bank and the Asian Development Bank, but both showed limited capacity to provide financing under the suggested terms.
The plan aimed to arrange funding over 13 years starting from FY2027 to reduce the growing debt burden and lower electricity tariffs, especially for industries.
Officials said Pakistan was hoping to secure concessional loans at around 2% from global lenders, while talks with Saudi Arabia explored financing at nearly 1%.
However, lenders raised concerns due to country exposure limits, and Saudi Arabia has not yet given a formal response.
Under the proposal, Pakistan’s yearly refinancing needs were estimated to range from $4.40 billion in FY2027 to $1.21 billion by FY2039.
If low-cost financing had been secured, industrial electricity tariffs were expected to drop below 9 cents per unit in the early years.
Currently, the power sector’s circular debt stands at around Rs. 1.9 trillion. The government plans to reduce it to Rs. 1.614 trillion by June 2026 through measures such as borrowing from commercial banks and continuing a debt service charge of Rs. 3.23 per kWh over the next six years.
Officials added that while borrowing at higher interest rates is still an option, authorities are hesitant due to its potential impact on electricity prices and overall economic stability.