ISLAMABAD: Pakistan will present the International Monetary Fund (IMF) with a three-year plan to retire the gas sector’s Rs3.6 trillion ($12.9 billion) circular debt, as the government seeks to meet a key condition ahead of the global lender’s review talks scheduled for the last week of September.
The Finance Ministry is expected to brief the IMF on the proposed settlement plan during the review, with the final framework to be agreed after consultations with the lender, officials familiar with the matter said as cited by The News.
The gas sector’s total circular debt is about Rs3.6 trillion, comprising Rs2.1 trillion in interest and Rs1.5 trillion in principal. The circular debt has accumulated through a combination of tariff differentials, unpaid receivables and policy-related costs.
A report presented to a government committee put the tariff differential at Rs1.4 trillion, while power-sector receivables stood at Rs123 billion, sales and income tax receivables at Rs211 billion and litigation costs at Rs58 billion.
The proposed settlement relies on multiple sources. About Rs840 billion is expected to come from dividends of gas companies, while Rs270 billion could be generated through the petroleum levy, according to a report published by The News.
The plan also envisages reducing the debt by Rs310 billion through the deferral of additional LNG cargoes from Qatar, Rs15 billion through the power sector’s take-or-pay arrangements and Rs60 billion through full recovery of LNG costs, The News reported. The government also plans to settle the interest component of the circular debt.
However, full LNG cost recovery could increase gas prices for consumers. The government is expected to discuss the potential impact with the IMF before finalising the plan.
The IMF said in its latest review that Pakistan was maintaining semi-annual gas tariff adjustments aligned with cost recovery, a key step towards preventing further accumulation of circular debt.
The Fund also said Pakistan had finalised a comprehensive, audited dataset on gas-sector circular debt and was disseminating it quarterly, laying the groundwork for a gas circular debt management plan for fiscal year 2026-27.
The IMF also said Pakistan remained committed to achieving energy-sector viability and preventing a recurrence of circular debt through timely tariff adjustments that ensure cost recovery.
The Fund noted that regular tariff adjustments had helped halt the buildup of new principal debt in the gas sector.
