Pakistan’s power sector continues to face financial challenges as circular debt recorded a sharp increase during the current fiscal year, highlighting persistent structural issues within the energy sector despite an overall reduction in debt levels compared to the previous year.

According to data compiled by Arif Habib Limited using figures from the Ministry of Energy, the power sector’s circular debt reached Rs. 1.85 trillion as of April 2026. This represents a slight increase from Rs. 1.84 trillion reported in February 2026.

While the total circular debt stock remains significantly lower than the Rs. 2.41 trillion recorded during the same period last year, the pace of debt accumulation during the current fiscal year has raised concerns among industry observers and policymakers.

Data shows that circular debt increased by Rs. 240 billion during the first ten months of fiscal year 2025-26. In comparison, the increase during the corresponding period of the previous fiscal year was only Rs. 18 billion. This translates into a staggering rise of more than 1,200 percent in the rate of debt accumulation year-on-year.

Circular debt is a long-standing issue in Pakistan’s energy sector and generally arises when power generation companies, distribution companies, and government entities face payment shortfalls across the electricity supply chain. Factors such as transmission losses, low bill recovery rates, delayed subsidies, and inefficiencies in the system often contribute to the buildup of debt.

Despite efforts by successive governments to implement reforms and improve financial discipline within the power sector, the challenge continues to affect the sustainability of energy operations and investment prospects. Experts believe that addressing the root causes of circular debt remains essential for ensuring long-term stability in the electricity sector.

The latest figures indicate that although the overall debt stock has declined compared to last year, fresh accumulation during the current fiscal year remains a significant concern. Analysts suggest that without comprehensive reforms, the sector could continue to face financial pressures that impact power generation, distribution, and service delivery.

As Pakistan works to strengthen its economy and improve energy security, reducing circular debt remains one of the key priorities for policymakers. Sustainable solutions focused on efficiency improvements, better recoveries, and financial restructuring are expected to play a crucial role in addressing the issue moving forward.