Pakistan Cuts Power Sector Circular Debt Growth but Structural Gaps Remain

Overview

• The Power Division said the circular debt stock stood at Rs1,675 billion as of 30 June 2026 after FY2025-26 recorded a gross flow of Rs364 billion, which fell below the Rs400 billion target and was reduced to a net increase of roughly Rs61 billion following a Rs302 billion subsidy payment.
• K-Electric's nonpayments were the single largest driver of this year's flow, the division said, accounting for about Rs194 billion and leaving total receivables from K-Electric at Rs421 billion, made up of Rs197 billion in principal and Rs224 billion in markup.
• Ex-WAPDA distribution companies posted losses of about Rs262 billion in FY2025-26, a persistent source of pressure even as their under-recoveries improved to Rs64 billion and interest and markup costs to generators and financing fell to Rs14 billion.
• Circular debt builds when distribution companies and large customers fail to pass payments to generators and fuel suppliers, forcing the sector to borrow and accumulate payables to producers and fuel sellers that then attract additional interest and markup.
• The government points to a two-year improvement in accumulated liabilities, with the stock falling about Rs718 billion since end-FY2023-24, but officials warn that lasting relief will require resolving K-Electric receivables and fixing DISCO operational losses to avoid renewed pressure on tariffs and public finances.