ECC approves Rs200b power subsidy to keep circular debt within IMF-agreed limits

As the government projects an alarming increase of Rs491 billion in circular debt within six months, a cabinet body on Thursday approved Rs200 billion power subsidies to keep the flow of the debt within limits agreed with the International Monetary Fund.

The Economic Coordination Committee of the Cabinet that took the decision also approved Rs11.5 billion for discretionary spending on the parliamentarians’ schemes in total disregard to the nation’s fiscal health.

The ECC approved a “supplementary grant amounting to Rs200 billion under the head of government of Pakistan investment in DISCOs’ equity to address cash flow constraints in the power sector”, according to an announcement by the Ministry of Finance after the meeting.

Out of the Rs200 billion, the Ministry of Finance would give Rs105 billion from its coffers while the remaining amount would be given out of the power sector’s allocated subsidies. For the current fiscal year, the government had given Rs1.04 trillion for power subsidies, which the IMF cut to Rs893 billion during the time of second review.

However, despite trillions of rupees injection every year, the sector’s performance remains extremely poor. The ECC was informed by the Power Division that a “key concern remains the persistent accumulation of circular debt, which stood at Rs1.817 trillion at the end of October 2025”. The debt was Rs1.614 trillion by June this year.

The cabinet body was further informed that as per the projected invoices from power producers, estimated recoveries from DISCOs and routine tariff differential subsidy for November & December 2025, the circular debt stock is projected to reach Rs2.105 trillion by the end of December 2025.

The projected level is Rs491 billion higher than June's level and the government now has to inject Rs200 billion to bring it down to the level agreed with the IMF. The IMF has asked the government to restrict the flow of the circular debt to Rs300 billion. This translates into Rs1.914 trillion levels by the end of this month. The Rs491 billion increase is 35% higher compared to the circular debt level of June this year.

The ECC was informed that payments to power producers must be made in a timely manner; delays would further constrain electricity availability and adversely impact economic growth. It added that since payments to IPPs are secured through sovereign guarantees issued by the government, delays increase the likelihood of guarantee calls and the imposition of late payment surcharges.

The Power Division was of the view that the disbursement of the Rs200 billion subsidy would support the achievement of circular debt flow targets. The IPPs dues have again increased to Rs1.07 trillion by October, which is also Rs228 billion higher than June this year.

The Power Division informed the ECC that payables to Independent Power Producers have again reached a level that is increasingly unsustainable as IPPs face mounting pressure in meeting their debt obligations and maintaining their fuel supply chains.

The IMF has set the overall circular debt flow target at Rs400 billion for the current fiscal year but the ECC last week approved a higher flow target of Rs522 billion. The IMF stated in the report that stock clearance subsidies of Rs400 billion would keep net circular debt accumulation at zero this fiscal year, meaning the budget will be used to cover systemic inefficiencies.

The IMF said efforts must now focus on improving bill collections and reducing line losses at power distribution companies, cost-reducing structural reforms, including private sector participation in DISCOs and GENCOs, advancing the wholesale electricity market, and addressing the gas sector's RLNG surplus and circular debt stocks.

Discretionary spending

The ECC approved three different summaries for allowing discretionary spending on the  parliamentarians’ schemes. It approved Rs6.4 billion grant for the Power Division for execution of SDGs Achievement Programme schemes in Punjab, Islamabad Capital Territory, Sindh and Khyber-Pakhtunkhwa (K-P).

In the defence sector, the ECC approved, on the proposal of the Ministry of Defense, a supplementary grant of Rs40 million for execution of development schemes under the SDGs Achievement Programme.

The ECC also approved a supplementary grant of Rs5.2 billion for execution of development schemes under the SDGs Achievement Programme in the provinces of Sindh and K-P.

ECC also okays Rs5.8b for establishment of Danish schools

The ECC approved additional funds amounting to Rs5.8 billion for the establishment of Danish schools in Azad Jammu and Kashmir, Gilgit-Baltistan and Balochistan, as well as for implementation of the Prime Minister’s Youth Skill Development Programme through NAVTTC.

The committee, however, advised the division to explore public-private partnership models to enhance sustainability, noting that continued reliance on regular government funding may be challenging in the future.

The committee further approved, on the proposal of the Power Division, a revision and readjustment of the eligibility criteria for funding under the Prime Minister’s Fan Replacement Programme to ensure efficient implementation of the scheme and to further promote energy efficiency and reduction in electricity consumption.

The ECC approved Rs4.8 billion for payment to 945 deserving families of missing persons, as identified by the Commission of Inquiry on Enforced Disappearances. The disbursement will be made under the supervision of the commission in accordance with approved procedures.

The cabinet body approved the revised PC-I for construction of 104 additional family suites for members of parliament, including servant quarters, and directed the Capital Development Authority to submit a comprehensive plan for maintenance of its assets and preservation of building infrastructure.