Page 31 - CMA Journal (Sep-Oct 2025)

Focus Section

Central Power Payments Suppliers of Products
against electricity
Billing payments Purchasing
Consumers purchases and Services
Authority (CPPA) Power Producers Payments
Funds Flow Government DISCOs against electricity Finance cash Shortfall against products/
Payments
services
purchases

of Pakistan
TDS payments
Power Holding (Pvt.) Borrowed finance Commercial Lenders
Limited (PHPL) Debt servicing

Source: ADB

The term "circular debt" refers to a sequence of unpaid assistance or bank loans. However, these measures only
obligations that disrupt the flow of revenue. The maintain operations without addressing the underlying
accumulation of unpaid amounts over time increases causes, which worsens the CD. Influenced by the IMF,
fiscal pressure, reduces investment in necessary sector another strategy has been to raise electricity tariffs to
upgrades, raises inflation due to higher electricity tariffs, balance accounts. Since the onset of CD, tariffs have
and causes financial losses for state enterprises. increased more than tenfold, with a 192% surge in the
last six years alone, significantly contributing to financial
The issue of CD in Pakistan is attributable to a complex
losses and aggravating the situation (Chart 2). Over the
interplay of factors rather than a single cause,
years, several debt management plans were
highlighting deep-rooted systemic problems. The
implemented, but the outcome remained essentially
outdated grid infrastructure results in technical losses,
unchanged, as CD continued to rise.
while an inefficient governance structure leads to theft
and low recovery rates. Planning failures have increased The latest 2025 plan, endorsed by the IMF, involves a
production costs and capacity payments, exacerbating Rs. 1.225 trillion Islamic financing arrangement with 18
financial challenges. A critical yet frequently overlooked commercial banks, the largest in Pakistan's history. The
factor is the distortionary tariff design, which generally financing will settle Rs. 659 billion in liabilities of Power
requires support from government budgets. Holding Private Limited (PHPL) and clear arrears owed to
IPPs. The debt will be repaid over six years through
Policymakers often perceive CD as merely an accounting
quarterly installments, with an annual cash flow
issue and respond by injecting funds through budget
commitment of Rs. 310 billion.
Figure 1: The Debt Spiral through Time

Origin (2006)
Initial debt: Rs. 111 billion

PPP (2008–2013)

Inherited crisis, power outages increased to 8 -10 hours, Rs.1 trillion injection — Rs. 872 billion by 2012

PML-N (2013–2018)
Paid Rs. 480 billion, no reforms on expensive energy mix — debt resurfaced

PTI (2018–2022)

Uniform tariffs, subsidies — Rs. 2.2 trillion by 2020

Source: Malik (2020)
ICMA’s Chartered Management Accountant, Sep-Oct 2025 29