PAKISTAN has taken a landmark step in resolving its long-standing circular debt crisis with the finalization of Rs1.225 trillion syndicated Islamic financing deal.
Finance Minister Muhammad Aurangzeb has hailed the Rs1.2 trillion bank loan secured to settle Pakistan’s circular debt as the “largest financing and largest restructuring transaction” in the country’s history.
The circular debt had become a headache for the country as repeated attempts made by the successive governments to address the challenge proved transitory in nature and the debt continued to surge with implications for the sector, the government and consumers. The present government deserves credit for adopting an innovative approach to resolve the problem in an effort to make the energy sector sustainable. There will be no immediate impact of the deal on the electricity tariff but it is expected that in the long-term this will lead to at least ten percent reduction in the tariff. Once the loan is fully repaid in 4–6 years, the extra surcharge of Rs3.23 per unit on electricity bills will theoretically be removed, lowering tariffs. However, much depends on the ability of the authorities concerned to prevent accumulation of the debt and pass on the relief to consumers.
