Another year, another circular debt headline. But this time, something different has happened. For the first time in years, Pakistan’s power sector has seen a significant resolution of circular debt stock, even if the flow remains a looming threat. Recent Power Division data shows circular debt at Rs 2.396 trillion as of March 2025, a marginal increase since July last year, and Rs 398 billion lower than March 2024. This is no small feat for a system accustomed to perpetual bleeding.

Credit where it is due: the government has taken tough steps to control leakages, enforce cash flow discipline, and ring-fence funds to repay sector debt. The Finance Ministry’s decision to redirect the Rs 3.23/kWh Debt Service Surcharge (DSS) solely towards debt reduction, rather than letting it disappear into the general pool, reflects fiscal prudence.

Zafar Masud, Chairman of the Pakistan Banks Association (PBA), recently highlighted that this time, reforms go beyond temporary bailouts. There is an emerging focus on plugging systemic leakages, enforcing timely payments across the supply chain, and rethinking subsidy structures to reach the vulnerable without distorting the entire revenue cycle.........

© Business Recorder