Pakistan’s circular debt crisis has ballooned by Rs79 billion in just three months from July to September to a staggering Rs1.693 trillion by September’s end. From Rs1.614 trillion at the close of FY25, this fresh buildup isn’t a minor hiccup; it’s a full-blown relapse into a cycle that has bled the exchequer Rs2.1 trillion annually in subsidies, pushed tariffs to Rs25 per unit, highest in the region, and shaved 2–3 percent off GDP every year.
For a nation still reeling from 2025 floods and clinging to a fragile 3 percent growth, this debt isn’t a spreadsheet entry; it’s the reason lights go out, factories close, and dreams stay dark. The mechanics are brutally simple yet stubbornly resistant to cure. State-owned distribution companies (Discos) collect only 85–90 percent of billed amounts, lose 12–15 percent to theft and technical faults, and delay payments to generation companies. Gencos and independent power producers (IPPs), starved of cash, borrow at 15–20 percent interest, passing the cost back to consumers through Fuel Price Adjustments and Quarterly Tariff Adjustments. The Rs79 billion Q1 spike came despite Rs2 trillion cleared in FY25 through budget bailouts and tariff hikes. Floods worsened it: damaged transmission lines in Punjab and Sindh spiked line losses to 18 percent in some areas, while reconstruction demand imported extra furnace oil, widening the trade deficit by $3.21 billion in October alone.
K-Electric’s Rs229 billion receivables—Rs42 billion principal, Rs187 billion markup—stand as a glaring symbol: a privatized utility entangled in decades-old disputes with government Discos, accruing interest faster than resolutions.
This debt strangles every corner of the economy. It fuels 7.2 percent inflation as fuel surcharges hit food transport and cold chains. It crowds out private credit—banks hold Rs10 trillion in risk-free government paper instead of lending to SMEs. It devours fiscal space: power subsidies in FY26 are budgeted at Rs2.1 trillion—three-quarters of total debt servicing—leaving crumbs for schools, hospitals, and flood-resilient infrastructure. Factories in Faisalabad and Karachi run captive plants at double the grid cost, rendering Pakistani textiles 30 percent pricier than Bangladeshi rivals. Exports suffer, jobs vanish—textiles alone shed 200,000 positions since 2023. Households, where 44.7 percent live below $4.20 daily, face bills that consume 15–20 percent of income. Rural women, managing homes amid 8–12 hour loadshedding, lose productive hours; children in Balochistan study by lantern, perpetuating poverty’s cycle. The World Bank warns that energy inefficiencies, combined with climate shocks, could erase another decade of development gains.
At the heart lies governance failure. Discos remain political fiefdoms—chairmen appointed for loyalty, not competence. Theft is often protected by local influentials; in parts of Sindh and Khyber Pakhtunkhwa, entire villages run on kunda connections with police complicity. Take-or-pay IPP contracts, signed in the 1990s, guarantee dollar payments for 40 percent idle capacity, costing Rs1 trillion yearly even when demand dips. Successive governments kick the can—clear debt, hike tariffs, repeat—because real reform threatens vested interests: feudal lords, IPP owners, and Disco unions.
Yet, cracks of light appear. The IMF’s $7 billion Extended Fund Facility ties the next $1.2 billion tranche to privatizing five Discos by June 2026—Multan, Gujranwala, Hyderabad, Peshawar, and Quetta targeted first. The Competitive Trading Bilateral Contract Market (CTBCM), launched in pilot, allows industries to buy directly from generators, potentially slashing tariffs 20 percent by 2030. Renewables surge: 5,000 MW solar and wind added since 2023, Thar coal now 70 percent localized, cutting dollar outflows. The SBP’s green banking framework has mobilized Rs2 trillion for efficiency projects. Digital metering in Lahore and Islamabad cut theft 30 percent; smart grids in Faisalabad reduced line losses from 16 percent to 11 percent. The Risk Coverage Scheme now guarantees 80 percent of small-industry power loans, unlocking Rs200 billion in private investment.
These are seeds, not harvests. To break the circle, Pakistan needs a comprehensive overhaul. Privatize all Discos by 2028 under performance contracts—losses below 10 percent or management sacked, shares offered to employees and public for ownership buy-in. End capacity payments for idle plants; renegotiate IPP contracts transparently, converting dollar payments to rupee-indexed, retiring 10,000 MW inefficient plants to save Rs800 billion annually. Target subsidies ruthlessly: Rs50 monthly direct cash to 50 million vulnerable via Benazir expansion, phasing out Rs2 trillion blanket subsidies in three years. Invest Rs1 trillion in grids—smart meters for 20 million consumers, HVDC lines linking Thar to load centers, reducing national losses by 5 percent. Enforce theft zero-tolerance: drone surveillance, AI detection, amnesty-then-prosecution—six months to regularize kundas, then seven-year jail terms.
The human dividend would be transformative. Stable power means factories run 24/7, adding 500,000 textile jobs. Affordable tariffs free Rs5,000 monthly for poor families. Renewables create 300,000 green jobs. Women gain productive hours; children study past dusk. Exports climb $5 billion as competitiveness returns.
For many, this Rs1.693 trillion debt is stolen tomorrows. The Rs79 billion rise isn’t just a number; it’s a choice to delay reform. Pakistan has the tools—IMF leverage, private capital, proven pilots. It lacks only political courage to face lobbies and deliver power that empowers, not impoverishes. The debt rose in three months. Let resolve rise faster. The lights must stay on—not just for homes, but for hope.