In a significant policy announcement, Prime Minister Shehbaz Sharif stated that Pakistan’s crippling circular debt in the power sector, which had been consuming national resources at an alarming rate, is finally being addressed. Speaking via video link at the inauguration ceremony of Pakistan’s Circular Debt Elimination Plan in New York, the Prime Minister hailed the achievement as a milestone for both economic stability and energy sector reforms.
The Scale of the Crisis
Circular debt has long plagued Pakistan’s energy sector, representing unpaid obligations that accumulate due to inefficiencies, subsidies, and delayed payments between consumers, distribution companies, and power producers. The Prime Minister admitted that circular debt was “devouring all available resources” and had grown to unsustainable levels. Left unchecked, it threatened not only energy security but also fiscal stability.
By 2024, Pakistan’s circular debt had ballooned into trillions of rupees, creating cascading effects across the economy. Independent Power Producers (IPPs) struggled with delayed payments, state-run distribution companies failed to cover their costs due to line losses and theft, and the government bore the brunt through subsidies and financial guarantees.
A Collective Effort to Break the Cycle
Prime Minister Sharif credited the success of the new plan to a collective national effort, led by the Ministry of Energy under Federal Minister Awais Leghari. A dedicated task force was established, which engaged in intense negotiations with IPPs and international stakeholders. These negotiations, the Prime Minister said, were critical to restructuring outstanding obligations and setting a roadmap for long-term sustainability.
He praised the task force’s diligence, noting that the agreement reached with IPPs was both pragmatic and forward-looking. “This plan is the result of teamwork, resilience, and a shared vision for Pakistan’s energy future,” he emphasized.
IMF Recognition and International Confidence
During his remarks, the Prime Minister also revealed details of a recent meeting with the Managing Director of the International Monetary Fund (IMF). He noted that the IMF leadership had acknowledged Pakistan’s progress in stabilizing its economy, particularly its efforts to reform the power sector. The recognition is expected to strengthen Pakistan’s case for continued international financial support and investment in energy infrastructure.
Structural Challenges Still Ahead
Despite the optimism, the Prime Minister admitted that line losses remain a serious challenge. These losses, caused by outdated infrastructure, theft, and inefficiencies in distribution, account for billions in annual losses. Addressing these technical and governance flaws, he stressed, will be the next step in consolidating the gains from circular debt reduction. “We cannot afford to repeat past mistakes,” he said, calling for strict accountability and modernization across the power sector.
The Circular Debt Elimination Plan
Energy Minister Awais Leghari, speaking at the same ceremony, explained the framework of the elimination scheme. According to him, the circular debt had not only burdened the economy but also hindered the growth of the energy sector. Under the new plan, developed through consensus, Pakistan aims to completely eliminate circular debt within six years.
He emphasized that this was not a short-term patch but part of a broader reform strategy that will align tariffs, improve governance, and promote efficiency in generation and distribution. “This is not just about clearing arrears; it is about transforming the way our energy sector operates,” he remarked.
The Role of the Finance Ministry
Finance Minister Muhammad Aurangzeb also addressed the event, noting that resolving the circular debt crisis was a structural reform priority for the government. He revealed that the ministry had been working on the scheme for over a year, engaging in detailed financial modeling and consultation with stakeholders.
Calling the plan a “historic milestone,” the Finance Minister stated that once fully implemented, the scheme would have long-lasting impacts on Pakistan’s economic and energy outlook. He argued that reducing circular debt will ease fiscal pressure, attract foreign investment, and allow the government to allocate resources to development and social sectors rather than debt servicing.
Economic and Social Implications
The elimination of circular debt is expected to stabilize electricity tariffs, reduce the frequency of load-shedding, and restore investor confidence in Pakistan’s energy market. By improving the financial viability of the power sector, the government hopes to attract both domestic and foreign investments in renewable energy, which will diversify the energy mix and reduce reliance on expensive imported fuels.
Socially, the plan is likely to bring relief to millions of consumers who have faced high electricity bills and frequent power cuts due to inefficiencies in the system. With a more stable and transparent energy framework, the public can expect gradual improvements in service delivery.
Long Road to Reform
While the Prime Minister’s declaration marks a turning point, analysts caution that Pakistan’s energy sector requires sustained political will to enforce reforms. Past governments have also launched debt clearance schemes, but without addressing the root causes—such as theft, line losses, and poor governance—debt stocks re-emerged within years.
The government’s commitment to tackling these underlying issues will determine whether the current effort delivers permanent relief or becomes another temporary fix.
Conclusion
Prime Minister Shehbaz Sharif’s announcement in New York signals a renewed determination to tackle one of Pakistan’s most stubborn economic problems. By initiating a comprehensive circular debt elimination plan, supported by the energy and finance ministries, the government has taken a critical step toward restoring fiscal discipline and energy security.
If implemented effectively, the plan could mark a historic shift in Pakistan’s energy landscape, ending decades of inefficiency and financial mismanagement. However, success will depend on the government’s ability to sustain reforms, curb line losses, and maintain transparency. Only then will this initiative truly free the country’s energy sector from the cycle of debt that has drained national resources for far too long.
