Pakistan is preparing to present the International Monetary Fund (IMF) with a three-year plan to eliminate around Rs3.6 trillion in circular debt accumulated in the gas sector as the government works to meet a key condition ahead of the lender’s upcoming economic review.
According to officials familiar with the matter, the Finance Ministry is expected to brief the IMF on the proposed settlement plan during review talks scheduled for the last week of September. The final framework is likely to be agreed after consultations with the international lender.
The gas sector’s circular debt has climbed to approximately Rs3.6 trillion, including around Rs2.1 trillion in interest and Rs1.5 trillion in principal.
What caused the gas-sector debt?
Officials said the debt has accumulated because of tariff differentials, unpaid receivables and various policy-related costs.
A report presented to a government committee estimated the tariff differential at Rs1.4 trillion. It also identified Rs123 billion in power-sector receivables, Rs211 billion in sales and income tax receivables and Rs58 billion in litigation-related costs.
The debt burden has also been aggravated by expensive liquefied natural gas (LNG) supplies.
Gas utilities diverted costly imported LNG to domestic consumers, while disruptions to LNG supplies under Pakistan’s agreement with Qatar forced the country to arrange spot cargoes at significantly higher prices.
How does the government plan to clear the debt?
The proposed three-year settlement plan would use several sources to reduce the outstanding liabilities.
Around Rs840 billion is expected to be generated through dividends from gas companies, while another Rs270 billion could come from the petroleum levy.
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The government also plans to reduce the debt by approximately Rs310 billion through the deferral of additional LNG cargoes from Qatar.
A further Rs15 billion could be addressed through take-or-pay arrangements in the power sector, while Rs60 billion is expected to be recovered through the full recovery of LNG-related costs.
The government also intends to settle the interest component of the circular debt as part of the broader plan.
LNG cost recovery may affect consumers
The proposed measures, however, could create additional pressure on consumers.
Full recovery of LNG costs could lead to higher gas prices, potentially adding to inflationary pressures at a time when the government is already seeking to maintain economic stability under its IMF programme.
Officials are therefore expected to discuss the potential impact of the proposed settlement with the IMF before the plan is finalised.
The three-year roadmap is intended to provide a structured mechanism for addressing the gas sector’s longstanding financial liabilities while helping Pakistan meet its commitments under the IMF programme.
