Another stab at circular debt

The government’s Rs1.225 trillion syndicated financing deal with 18 banks — the largest in Pakistan’s history — is being trumpeted as a landmark move to ease the power sector’s crippling circular debt. Tied to an existing surcharge on electricity bills, the cashflow-backed plan is touted as a step towards fiscal stability and energy sector reform. Yet critics and supporters warn that, without deeper structural changes, it could end up as just another costly rerun of past bailouts. Under the deal, the government will use Rs565 billion in fresh financing to settle its unpaid dues to power producers while restructuring older loans worth Rs660bn, previously contracted at Kibor plus 2.5–4 per cent and parked with Power Holding Limited, a shell subsidiary of the power ministry.