Moaaz Manzoor

Pakistan successfully reduced circular debt by PKR12 billion in FY2024 through power sector recoveries, marking a rare fiscal achievement. However, further reforms remain necessary to address the long-standing issue, reports WealthPK.

The circular debt in the energy sector has been a persistent challenge, affecting financial stability and economic growth. The recent data indicates a positive shift, particularly in the first five months of FY2024 (July to November), reflecting better debt management and adherence to the IMF agreements. Speaking with WealthPK, the Power Division spokesperson explained that circular debt was divided into two components: the buildup (accumulated debt) and the flow (monthly increases or decreases).

Under Pakistan’s agreement with the IMF, the government was allowed an increase of PKR380 billion in the flow over five months. However, the government reduced it by PKR12 billion rather than adding to the debt. In June 2024, the circular debt stood at PKR2,393 billion. By November, it declined to PKR2,381 billion, marking a net reduction of PKR12 billion. This starkly contrasts the same period in 2023, when circular debt surged by PKR368 billion.

The ability to prevent a PKR380 billion increase while achieving a reduction of PKR12 billion highlights improved fiscal discipline and operational efficiency. The spokesperson credited this progress to enhanced electricity bill recoveries by the distribution companies (DISCOs). The recovery rate increased from 92% to 96%, reflecting better governance, stricter enforcement, and improved operational efficiency.

Despite these encouraging developments, challenges remain. As of November 2024, the circular debt stood at PKR2,381 billion, emphasizing the need for sustained reforms. Addressing structural inefficiencies, reducing line losses, improving tariff mechanisms, and enhancing supply-side efficiency will be crucial to achieving long-term energy sector stability.

Pakistan’s success in reducing circular debt by PKR12 billion while preventing a projected PKR380 billion increase marks a significant achievement in fiscal discipline. However, continued reforms and policy improvements are necessary to ensure the sustainability of these gains and a stable energy sector for future growth.

Credit: INP-WealthPk