ISLAMABAD: In a major financial restructuring move, the federal government has signed term sheets with 18 commercial banks to secure a Rs1.275 trillion ($4.5 billion) Islamic financing facility aimed at tackling the country’s ballooning circular debt in the power sector.
Power Minister Awais Leghari confirmed the development on Friday, stating that the funds would be used to ease the mounting liabilities in the energy sector, which have hampered supply, deterred investment, and placed immense pressure on the economy.
“Eighteen commercial banks will provide these loans through Islamic financing,” Leghari told Reuters. “It will be repaid in 24 quarterly instalments over six years.”
The facility, structured under Islamic finance principles, is being offered at a concessional rate — three-month KIBOR minus 0.9 per cent — under an arrangement approved by the International Monetary Fund (IMF). According to officials, this will help reduce reliance on high-cost legacy loans, some of which carry surcharges of up to KIBOR plus 4.5 per cent.
Key banks participating in the deal include Meezan Bank, HBL, National Bank of Pakistan, and UBL. The government is expected to allocate Rs323 billion annually for repayments, with the total amount capped at Rs1.938 trillion over the six-year period.
“This reflects our commitment to sustainable institutional reforms and reducing fiscal pressure, paving the way for a more stable and prosperous energy future,” Prime Minister Shehbaz Sharif remarked while chairing a recent federal cabinet meeting that approved the plan.
The cabinet also formally endorsed the comprehensive ‘Debt Plan’, designed to refinance Rs683 billion owed by the Power Holding Company and settle longstanding dues of Independent Power Producers (IPPs), all without adding to the public debt.
Officials say the deal aligns with Pakistan’s broader goal of phasing out interest-based banking by 2028, noting that Islamic finance now accounts for nearly 25% of the country’s total banking assets.
The agreement is a key pillar of reforms tied to the $7 billion IMF programme, which has identified circular debt as one of the major fiscal challenges facing the country.