Despite the payment of PKR 50 billion for the CPEC power project in June by the government, the piling up of unpaid payments has only skyrocketed in Pakistan. According to ARY News, the South-Asian country’s circular debt stands at PKR 2.253 trillion even after paying Rs 564 billion to power plants.

The federal government has indicated to end of the circular date of the CPEC power project, ARY News reported citing sources and said that the government has assured payment to the CPEC power project if energy rates are reduced. Amid the worsening economic situation in the country, the Pakistan government’s total debt has increased by 15.3 per cent in the first 11 months of the fiscal year FY22.

Pakistan’s overall foreign exchange holdings also fell to USD 15.742 billion while the reserves of the commercial banks were USD 5.926 billion. Long-standing deficiencies over the past decades, along with the Ukraine war and the COVID-19 shock have severely strained the energy sector, resulting in an unsustainable stock of arrears (circular debt) that weighs on the financial sector, budget, and the real economy.

There are multiple causes, including delayed price adjustments, deferred payments, postponing key investments, and granting ill-targeted subsidies, among others. The energy sector’s strategy under the IMF-supporting program aims at restoring its financial viability, through a comprehensive plan, that includes strengthening the legal framework of regulatory agencies, management improvements, cost reductions, and adjustments in tariffs and subsidies calibrated to attenuate social and sectoral impacts.