The International Monetary Fund (IMF) has asked Pakistan to bring its circular debt in the power and gas sectors down to zero during the current fiscal year. This demand is part of the conditions linked to financial assistance programs, which aim to stabilize Pakistan’s struggling economy. While the task is difficult, the government has signaled its willingness to work toward this target.
What is Circular Debt?
Circular debt happens when power companies, fuel suppliers, and government agencies cannot fully pay each other on time. For example, electricity distribution companies collect less money from consumers than they need to pay for fuel and generation costs. As unpaid bills build up, the debt keeps rolling forward like a chain reaction.
In Pakistan, circular debt has grown into a major problem over the past decade. It affects the performance of power plants, discourages new investment, and creates shortages that hurt both households and industries. The gas sector has also faced similar payment issues, adding to the overall financial burden.
IMF’s Concern
The IMF believes that reducing circular debt is essential for Pakistan’s economic recovery. According to the Fund, continuing to allow this debt to grow will only weaken the energy sector and increase pressure on the national budget.
By asking Pakistan to eliminate the debt within this fiscal year, the IMF is pushing for urgent reforms. These include improving bill collections, cutting theft and line losses, raising tariffs to reflect real costs, and making subsidies more targeted.
Government’s Response
The Pakistani government has acknowledged the seriousness of the problem. Officials have said that they are working on a plan to manage payments more effectively and prevent new debt from forming. Steps may include stricter action against power theft, better efficiency in state-run companies, and gradually adjusting prices to cover production costs.
At the same time, the government must balance these reforms with public concerns. Higher tariffs and fewer subsidies can put extra pressure on ordinary citizens, especially those with low incomes. For this reason, authorities are considering ways to protect vulnerable groups while still meeting IMF requirements.
Challenges Ahead
Bringing circular debt to zero in such a short time will not be easy. Pakistan’s power sector has deep structural issues that cannot be solved overnight. Political pressure also makes it difficult to raise energy prices sharply. In addition, weak governance and corruption in some areas have slowed down past reform efforts.
Experts suggest that Pakistan must combine immediate measures with long-term strategies. Short-term steps may include clearing outstanding payments and adjusting tariffs. Long-term reforms should focus on promoting renewable energy, reducing reliance on expensive imported fuels, and improving the efficiency of power distribution companies.
Conclusion
The IMF’s call for Pakistan to reduce circular debt to zero in the current fiscal year is a bold challenge. Meeting this demand will require strong political will, careful planning, and public support. While painful reforms may be necessary, addressing circular debt is vital for the health of the energy sector and the stability of Pakistan’s economy.