Imama Khan is a Research Assistant at Centre for Aerospace and Security Studies, Lahore. She can be reached at [email protected].

In February 2025, Pakistan’s electricity generation dropped by 15% to 6,945 GWh as the circular debt of the country stood at PKR 2.9 trillion. The energy crisis has been one of the most prevalent issues in Pakistan for the past few decades. This has exacerbated the economic crisis in the country. Energy shortages and high tariffs directly impact industrial growth, which in turn affects the country’s economy. To avoid slipping into default, the country then has to rely on IMF bailouts. As of March 2025, the total outstanding credit of Pakistan with the IMF stands at 6.33 billion Special Drawing Rights (SDRs). So, how can Pakistan mitigate the crisis its energy sector is facing to overcome the barrier it creates to economic development?

While there are multiple drivers of Pakistan’s energy predicament, circular debt stands out as the major factor. There are four major players in the energy sector of Pakistan: the government and regulators, power generation companies, national transmission and distribution companies, and consumers. When one of these entities fails to make payments to another, a pile of unpaid bills accumulates. This is what is known as circular debt. Another major reason for Pakistan’s energy crisis is its........

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