Power division blames Finance Ministry for Rs61 billion rise in circular debt

Pakistan's power sector circular debt has climbed to Rs1.675 trillion as of June 30, an increase of Rs61 billion from the previous year, according to the power division. The division has placed the blame squarely on the Ministry of Finance, citing a significant budget deduction that it claims directly contributed to the rise in debt.

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Due to the budget deduction of Rs98bn, the circular debt witnessed an increase of Rs61bn during FY2025-26.

In a statement, the power division asserted that a Rs98 billion deduction from the allocated budget for the power sector during fiscal year 2025-26 led to the Rs61 billion increase in circular debt. It argued that had the full budgetary payment been received, the circular debt would have decreased to Rs1.577 trillion. This assertion comes despite the government meeting its International Monetary Fund (IMF) targets for controlling the flow and reducing the stock of circular debt by the end of December 2025.

The power division highlighted that while Rs1.036 trillion was initially allocated for power sector subsidies in the federal budget for FY26, this was later reduced. Further cuts, reportedly as part of an austerity policy before the current budget was passed, reduced the effective subsidy to Rs795 billion. The division presented figures showing a decrease in circular debt from Rs2.393 trillion in FY24 to Rs1.614 trillion in FY25, and a reduction in losses for power distribution companies from Rs591 billion in FY24 to Rs397 billion in FY25, further decreasing to Rs326 billion in the current fiscal year.

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Had the power sector received the full allocated budgetary payment, the circular debt would have further reduced to Rs1.577tr.

Despite the ongoing dispute over the debt increase, the power division claimed that these reductions demonstrate the effectiveness of implemented reforms in the power sector, yielding sustained positive outcomes and progressing toward financial sustainability. The division reiterated its commitment to its reform agenda, framing the budget deduction as a temporary financial factor rather than an indicator of operational decline. The Ministry of Finance has not yet publicly responded to these specific accusations.

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This reduction clearly demonstrates that the reforms implemented in the power sector are proving effective and yielding sustained positive outcomes.