The Pakistan power sector circular debt has once again surged, raising serious concerns among policymakers, industry specialists, and economic observers. According to the latest data reported by The News, the Pakistan power sector circular debt climbed by Rs79 billion in the first quarter of FY2025-26, reaching an alarming Rs1.693 trillion by the end of September. This renewed rise reflects persistent inefficiencies and deep-rooted challenges within the country’s energy system.
At the close of FY2024-25 in June, the circular debt stood at Rs1.614 trillion. But in just three months of the new fiscal year, the system witnessed enough losses to push the total debt significantly upward. The recurrence of this pattern highlights that the Pakistan power sector circular debt is not simply a financial number—it is a symptom of structural problems that continue to trouble the national energy chain.
Why the Debt Is Rising Again
Energy experts believe the buildup results from longstanding issues such as power theft, low bill recoveries, and chronic inefficiencies within state-run distribution companies (Discos). These Discos, responsible for electricity distribution across regions, remain burdened by outdated infrastructure, weak enforcement, and operational mismanagement. Their shortcomings contribute directly to the expansion of the Pakistan power sector circular debt, making reforms increasingly urgent.
A major component of the debt is tied to receivables from K-Electric. By September 2025, these receivables had reached Rs229 billion, consisting of Rs42 billion in principal payments and a staggering Rs187 billion in accumulated markup. Such large outstanding amounts worsen liquidity problems and disrupt cash flows of the national grid, making it harder to pay fuel suppliers, power producers, and transmission companies.
Growing Debt and Wider Economic Pressures
The rising Pakistan power sector circular debt has broader implications beyond the energy sector. It places additional fiscal pressure on the federal government, which is already struggling to manage high budget deficits and costly external debt repayments. As circular debt increases, the government is forced either to borrow more money or raise electricity tariffs—both options affecting the economy and public sentiment.
Meanwhile, new economic data underscores the fragile state of Pakistan’s external sector. The country’s goods trade deficit widened by nearly 56% year-on-year in October 2025, reaching $3.21 billion. Imports rose sharply to $6.06 billion, while exports declined to $2.85 billion. This widening deficit threatens currency stability and poses risks for foreign exchange reserves—risks that could be compounded by the ongoing burden of the Pakistan power sector circular debt.
Between July and October, the trade gap expanded by 38% to $12.58 billion. Rising imports, largely driven by energy, machinery, and raw materials, combined with declining exports, have intensified economic vulnerabilities. Economists warn that if these trends persist, Pakistan may face a tougher environment for external debt repayments and could experience additional pressure on the rupee.
A Mixed Picture in the Services Sector
Despite troubling trends in goods trade, there was a slight improvement in the services sector. According to PBS data, the services trade deficit narrowed by 34.3% year-on-year in September 2025, declining to $198.5 million. Services exports rose significantly by 20.3%, reaching $796.7 million, while imports grew only modestly. This positive movement, however, is not enough to offset the economic risks connected to the rising Pakistan power sector circular debt.
Last fiscal year, the services trade deficit had already narrowed due to strong performance in IT, business outsourcing, and travel-related services. These sectors continue to offer potential for growth, but the broader macroeconomic environment remains heavily influenced by the financial pressures of the energy sector.
Why Circular Debt Matters for Every Citizen
The Pakistan power sector circular debt ultimately affects households and businesses alike. As the debt increases, power producers face cash shortages, leading to inefficient generation, potential shutdowns, and frequent fuel-related disruptions. This results in higher electricity tariffs, load-shedding, and unstable supply—issues that hurt industries, reduce productivity, and increase costs for ordinary citizens.
Furthermore, the need to continuously inject government funds into the energy system diverts resources away from essential public sectors such as health, education, and infrastructure. Each rupee spent on covering energy losses represents a missed opportunity for national development.
The Way Forward
Experts stress that addressing the Pakistan power sector circular debt requires comprehensive reforms. These include modernising distribution companies, improving billing systems, reducing line losses, enforcing anti-theft measures, and restructuring payment mechanisms between federal and provincial entities. Without concrete action, the debt will continue to grow, undermining economic stability and investor confidence.
The rise of the Pakistan power sector circular debt to Rs1.693 trillion is a clear indication that short-term fixes are no longer enough. Pakistan must prioritise long-term reforms to enhance efficiency, reduce financial leakage, and protect the economy from deeper structural damage. The issue is not merely an accounting challenge—it is a decisive test of the country’s ability to stabilise its energy sector and improve its economic future.
