In a significant step toward stabilising Pakistan’s financial system, the federal government has finalised a landmark agreement to address the country’s circular debt in the power sector, which has ballooned to Rs1.225 trillion.

According to the Ministry of Finance, the agreement was achieved under the leadership of the Prime Minister’s Task Force, with vital collaboration from the State Bank of Pakistan, 18 commercial banks, and the Pakistan Banks Association (PBA).

Under the terms of the agreement, Rs660 billion of existing debt will be restructured, while an additional Rs565 billion in new financing will be provided to power generation companies to clear outstanding payments.

The Finance Ministry emphasised that no new financial burden will be placed on consumers under this agreement.

The debt repayments will be managed through the existing surcharge of Rs3.23 per unit, already embedded in electricity bills, it maintained.

The federal government has signed a 1.225 trillion rupees financing agreement with a consortium of eighteen banks to address the country’s power sector circular debt.

A signing ceremony to this effect was held in Islamabad.

Prime Minister Shehbaz Sharif, who witnessed the signing ceremony via video link from New York, termed the agreement a significant milestone in efforts to tackle the mounting issue of circular debt.

He said that the credit for this deal goes to the relevant task force, which fulfilled its responsibilities in an excellent manner.

The prime minister highlighted that the IMF Managing Director, during a meeting with him, was appreciative of the reforms being carried out by the government.

He said the next step is the privatisation of DISCOs and dealing with the challenge of line losses, emphasising the need to move forward with confidence and firm resolve to register more successes.

The Ministry of Finance stated that the agreement would pave the way for the release of sovereign guarantees worth Rs660 billion, which will create investment opportunities in critical sectors such as the agricultural sector, small and medium enterprises (SMEs), housing, education and health.

Finance Minister Muhammad Aurangzeb said the deal would help restore fiscal discipline, implement power sector reforms, and rebuild investor confidence.

“This agreement is a model of collective leadership, technical expertise, and public-private collaboration,” Aurangzeb said.

“It marks a major breakthrough in resolving long-standing structural problems in the energy sector. The government is fully committed to ensuring reforms in this area.”

The ministry said that the agreement will not only bring stability to the energy sector but also open new avenues for economic growth, supporting sustainable development and increasing investor trust in the country’s financial and energy systems.