The Federal Government has signed a financing agreement of RS1.225 billion with a consortium of 18 banks to address the circular debt of the country’s energy sector, a Minister of Transaction Finance Muhammad Aurengzeb described as the largest restructuring agreement in the history of Pakistan.
The Ministry of Finance Facilitated The Loan Agreements with Habib Bank, Meezan Bank, National Bank of Pakistan, Allied Bank Ltd, United Bank Ltd, FaySal Bank Ltd, Bank Al Habib Ltd, McB Bank Ltd, Bank Alfalah, Dubai Islamic Bank, Bank of Punk, Bank of Pun Pakistan, Askari Bank Ltd, Habib Metropolitan Bank, to Baraka Bank Ltd, Bank of Khyber, MCB Islamic Bank and Soneri Bank.
The signature ceremony was held in Islamabad and witnessed virtually by Prime Minister Shehbaz Sharif in New York. The prime minister described the agreement as a “significant milestone” in the efforts to stop the growing debt, accrediting the working group for “fulfilling their responsibilities excellently.”
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Shehbaz added that during a recent meeting, the IMF managing director praised the government reform agenda. He stressed that the next step would be the privatization of energy distribution companies (disc) and addressing the challenge of line losses, urging officials to move forward with “firm confidence and resolution.”
Aurengzeb said that the financing installation is a “situation of winning for all” and will directly support efforts to resolve the circular debt crisis. He stressed that the benefits of structural reforms in the electrical sector will finally reach consumers.
The Federal Energy Minister Sardar Awais Ahmad Leghari, praised the circular debt financing center as a “historical initiative” to restore the financial health of the electricity sector. He pointed out that the measure is not isolated, but part of a broader reform agenda aimed at guaranteeing stability and providing relief to consumers.
According to an official statement, the signature ceremony at the Prime Minister’s house was acclaimed as an advance when addressing the circular debt crisis, which has tensioned the energy supply chain, shook the confidence of investors and swelled almost RS2.4 billion, 2.1% of GDP.
The main banks participated in the agreement. The Association of Banks of Pakistan (PBA) worked closely with the Ministry of Finance, the Ministry of Energy, the State Bank of Pakistan (SBP) and the central Power Purchasing Agency (CPPA) to generate consensus on regulatory and financial obstacles. Restructuring is described as one of the most significant financial transactions in Pakistan’s history.
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The agreement includes RS659.6 billion in the restructuring of the existing loans in the books of the banks and RS565.4 billion in fresh financing to eliminate the payments of the government delayed to energy producers. The release of sovereign guarantees worth RS660 billion will unlock liquidity, allowing banks to inject financing in agriculture, SMEs, housing, education and medical care.
The structure backed by the cash flow does not add a new load for the government or consumers. On the other hand, the existing surcharge of RS3.23 per unit of debt service will be redirected towards reimbursement. Loans will have a price of Kibor less 90 basic points, around 150 basic points lower than the current rate. This concession reflects the arrangement of banks to absorb reduced profits so that the transaction is viable.
The president of the PBA, Zafar Masud, said that the agreement reaffirmed the role of the sector as a partner in national development. “This transaction is not just about numbers; it is about reaffirming the role of the banking industry as an equal partner in the economic development of Pakistan. The resolution of the circular debt stock reflects PBA’s commitment to the construction of the nation and shows what can be achieved when the public and private sectors work together with a shared vision,” he said.
The authorities indicated that the agreement provides a template to resolve structural challenges through innovation and collaboration. When joining the government, the banking sector has positioned itself as a confidence partner in the delivery of sustainable solutions and establishes new standards for prudent fiscal management and private public cooperation.
