Pakistan’s power sector has witnessed a significant rise in circular debt during the current fiscal year, raising fresh concerns about the effectiveness of ongoing financial and structural reforms. According to official documents from the Power Division Pakistan, the debt increased by Rs224 billion in the first eight months.
Debt continues to climb despite policy measures
The data shows that circular debt reached Rs1,837 billion by February 2026, up from Rs1,614 billion in June 2025. Moreover, the figure had already climbed to Rs1,693 billion by September 2025, indicating a steady upward trend.
In addition, the government had signed agreements with banks in September to reduce circular debt by Rs1,225 billion. However, despite these measures, liabilities continued to grow. From October 2025 to February 2026 alone, the debt rose by another Rs144 billion.
Consequently, the increase suggests that short-term financial arrangements have not addressed the underlying causes of the problem.
Structural inefficiencies remain major concern
Meanwhile, analysts point to persistent structural issues within the power sector as key drivers of the rising debt. These include transmission and distribution losses, weak bill recovery mechanisms, and high electricity generation costs.
Furthermore, these inefficiencies continue to place pressure on public finances and limit the government’s ability to stabilize the energy sector. Although policymakers have introduced reforms aimed at improving recoveries and reducing losses, progress remains slow.
As a result, the growing circular debt poses risks to fiscal stability and complicates efforts to ensure a reliable and sustainable power supply.
Overall, experts warn that without deeper structural changes, the debt burden will likely continue to rise, undermining long-term economic planning and energy sector viability.
