Circular debt rise

The circular debt, reflecting sectoral inefficiencies, increased by 61 billion rupees in June 2026, raising the stock to 1.675 trillion rupees as of the end of the month, surpassing the target of 1.614 trillion rupees set with the International Monetary Fund (IMF) under the Extended Fund Facility programme. The deterioration was attributed to K-Electric's failure to pay 200 billion rupees on power purchases and the underperformance of some distribution companies, adding another 100 billion rupees.

Officials questioned how the circular debt could be eliminated when debts remain unpaid. The Power Division acknowledged the initial target was realistic due to lower international hydrocarbon prices, improved recoveries, reduced technical losses, and declining interest rates, which could have reduced the debt by 779 billion rupees.

However, the debt surged to 1.924 trillion rupees by May 31, 2026, including 873 billion rupees owed to banks under approved debt financing, with the IMF agreeing to the proposal as interest rates declined. K-Electric's tariff dispute is pending, but the division promised proactive action. A technical supplementary grant of 152 billion rupees was partially released to finance energy projects.

Despite past attempts, analysts remain skeptical about permanently resolving the circular debt issue, suggesting the government should address the power sector holistically, including ending taxpayer-funded tariff subsidies and renegotiating flawed IPP deals.