The government of Pakistan has planned to borrow Rs.1240 billion from banks to tackle circular debt of Rs2.381 trillion, it was reported on Monday.
As per the reports, the government has started discussion with the banks in this regard and there will be a breakthrough in the matter soon.
According to senior officials familiar with the matter, the discount rate has dropped significantly from 22% to 12%, with expectations of a further decline in the near future. “Authorities aim to capitalize on this trend and secure the Rs1.242 trillion loan,” an official stated, adding that negotiations with banks are ongoing, with efforts to finalize the agreement before the arrival of the International Monetary Fund (IMF) mission.
This development coincides with two upcoming IMF missions to Pakistan. The first mission will focus on climate finance discussions, while the second will assess the country’s progress under the $7 billion Extended Fund Facility (EFF).
Providing further details on the government’s negotiations with banks, the official disclosed that the State Bank of Pakistan (SBP) governor and the finance minister are actively involved in the discussions.
The government is seeking to borrow Rs1,240 billion at an interest rate of 6-7% for a seven-year period, whereas banks are proposing a lending rate of KIBOR+1.
“Once the term sheet is finalized, the government will borrow the funds for seven years, with repayment covered through the existing debt servicing surcharge of Rs3.23 per unit in electricity tariffs,” the official explained.
Of the Rs2.4 trillion circular debt, approximately Rs720 billion has already been settled by clearing past dues of six independent power producers (IPPs) whose contracts were terminated, as well as 15 IPPs that have transitioned to the “take and pay” model for power purchase agreements.
