KARACHI: The circular debt, a persistent and growing challenge for Pakistan’s economy, has reached alarming levels over the past decade, according to Syed Mazhar Ali Nasir, Central Leader of the UBG.

This self-perpetuating debt trap has far-reaching consequences, stifling economic growth and undermining the country’s financial stability. The circular debt has ballooned from approximately Rs.400 billion in 2012 to a staggering Rs.2.5 trillion in 2024, representing a six-fold increase.

The exponential growth of circular debt is primarily attributed to massive payments made to Independent Power Producers (IPPs) on account of power captive charges,” said Syed Mazhar Ali Nasir who is also Former Senior Vice president of FPCCI.

“This has resulted in severe consequences, including strained liquidity in the power sector, inhibited investment in generation and transmission infrastructure, increased burden on consumers through higher tariffs, enormous strain on the national exchequer, negative impact on the country’s credit rating, and investor confidence”, Mazhar added.

The primary driver of circular debt was the payment of capacity charges to IPPs, totaling over Rs.1.3 trillion. These payments, made regardless of power generation, created an unsustainable financial burden on the power sector, Mazhar further added.

To break the cycle of circular debt and revive Pakistan’s economy, Syed Mazhar Ali Nasir urged the government to Implement structural reforms in the power sector, renegotiate IPP agreements to reduce capacity charges, increase power generation efficiency, and enhance consumer tariff rationalization.

The circular debt has become a major obstacle to Pakistan’s economic progress,” said Syed Mazhar Ali Nasir. It is imperative that the government takes immediate and decisive action to address this issue, ensuring a sustainable and prosperous future for the nation to save the nation of this injustice, Mazhar added.

Copyright Business Recorder, 2024