Energy sector circular debt reaches Rs4,700bn

ISLAMABAD: The Ministry of Finance has declared circular debt of energy sector as a major fiscal risk, as it has reached Rs4,700 billion.

According to finance ministry documents, circular debt of energy sector was recorded at Rs4,700 billion as of December 2024. The share of power sector is Rs2,400 billion, while that of gas sector is Rs2,300 billion.

The ministry is of the view there is no clear strategy for paying off circular debt in the near future. According to the documents, government does not have financial capacity to pay off circular debt. There is little room for tariff adjustment. The ministry has warned if circular debt issue is not resolved, this permanent burden will weaken fiscal sustainability. “Circular debt will limit essential development spending and increase borrowing requirements. Circular debt increases fiscal pressure”, it said.

According to the ministry, circular debt creates scope for subsidies, bailouts or debt restructuring. It said federal budget does not include specific points to deal with circular debt issue. The government, however, is responsible for paying off the circular debt, it said.

A credible and transparent strategy is required to prevent and eliminate circular debt. This can ensure long-term fiscal stability.