Latest news with #Rs2.4
Business Recorder
3 days ago
- Business
- Business Recorder
Power sector: federal cabinet approves Rs1.275trn bank loan to cut circular debt
Pakistan federal cabinet approved on Wednesday Rs1.275 trillion loan from commercial banks at 'the lowest-ever rate' to cut its power sector's circular debt. The decision was taken for a permanent resolution of the circular debt in the power sector, the Ministry of Energy (Power Division) said. The loan aims to offset a portion of the circular debt, which currently stands at approximately Rs2.4 trillion. 'Under the plan, Rs1.275 trillion will be acquired from banks at a historic low interest rate — 0.9% lower than the 3-month KIBOR [Karachi Interbank Offered Rate],' it said. 'For the first time, instead of maintaining the circular debt stock at a certain level through previous methods, it will be gradually eliminated with the help of banks.' Circular debt: Govt in talks with banks to raise Rs1.275trn The loan of Rs1.275 trillion would be used to clear dues of independent power producers (IPPs) and retire Power Holding Company Limited (PHL) debt, the Power Division said. 'The acquired loan will also be fully retired over the next six years. This move will not impose any additional financial burden on the national exchequer.' According to the cabinet-approved plan, Rs683 billion of the financing will be used to clear the outstanding dues of the Power Holding Company Limited (PHL) . The loan will be repaid in 24 semi-annual installments, and the interest rate will be 0.9% lower than the 3-month KIBOR. An annual repayment cap of Rs323 billion was set, while a maximum repayment limit of Rs1.938 trillion was set in case of increased interest rates in the future. Business Recorder reported earlier this month that the government had finalised agreements for a historic loan package of Rs1.275 trillion with approximately 18 commercial banks to address the growing circular debt in the power sector. How will govt clear Rs2.4trn circular debt? Pakistan government has committed to the International Monetary Fund (IMF) to clear the circular debt by end of fiscal year 2025, according to the IMF report 'First Review Under the Extended Arrangement Under the Extended Fund Facility, Requests for Modification of Performance Criteria and Request for an Arrangement Under the Resilience and Sustainable Facility' released last month. K-Electric write-offs: NEPRA allows Rs50 billion as 'full and final claim' According to the IMF report, Pakistan government has said that it's on track to achieve net zero circular debt flow for FY25 and will strive for the same in FY26, through 'a combination of timely tariff increases, targeted subsidies, and cost-reducing reforms'. As per the government commitment, the National Electric Power Regulatory Authority (NEPRA) will continue with timely automatic notifications of regular quarterly tariff adjustments (QTAs) and monthly fuel cost adjustments (FCAs) to capture any gaps between the base tariff and actual revenue requirements that arise during the year, to prevent circular debt flow. 'We [Pakistan government] will ensure the full implementation of the July 2025 annual rebasing (new SB, July 1, 2025), QTRs, and FCAs going forward. All provinces agree not to introduce any subsidy for electricity or gas.' Of the existing circular debt stock of Rs2.4 trillion (2.1 percent of GDP), the government committed to clear, by end-FY25, Rs348 billion via renegotiation of arrears with IPPs (Rs127 billion of which will be via already-budgeted subsidy for circular debt stock clearance and Rs221 billion of which will be via CPPA cash flow); Rs387 billion via waived interest fees; and Rs254 billion via additional already-budgeted subsidy for circular debt stock clearance; Rs224 billion in non-interest-bearing liabilities will not be cleared. The remaining Rs1.252 trillion (now Rs1.275 trillion) was committed to be borrowed from banks to repay all PHL loans (PRs 683 billion) and to clear the remaining stock of interest-bearing arrears to power producers (PRs 569 billion), according to the IMF report.
Express Tribune
7 days ago
- Business
- Express Tribune
Govt borrowing crowds out private sector
Over half of the fresh borrowing in the education sector was done by the higher education sector. PHOTO: FILE Listen to article The Pakistan Economic Survey 2024-25 has highlighted a persistent structural imbalance in the country's banking sector, where lending to the government continues to dominate over credit disbursement to the private sector. Commercial banks have largely preferred investing in risk-free government securities, such as treasury bills and Pakistan Investment Bonds (PIBs), which offer secure and high returns, especially given the elevated interest rate environment that prevailed for most of FY24. The policy rate remained at a record high of 21% during much of the year as part of State Bank of Pakistan's (SBP) efforts to curb inflation. This made government securities particularly attractive to banks, leading to a further rise in their share within banks' asset portfolios. In terms of domestic debt, the government relied mostly on long-term borrowing through PIBs and Sukuk for financing the fiscal deficit. During the period, Rs2.4 trillion worth of treasury bills were retired. The government also introduced a new two-year, zero-coupon bond through which Rs610 billion was raised. These measures helped improve the maturity profile, reflected by the extension of the average time to maturity of the domestic debt from 2.9 to 3.5 years, according to the survey. "Regarding the auction of domestic debt securities, robust market participation was witnessed," said the report. Total bids received for treasury bills were Rs28.230 trillion (acceptance of Rs9.473 trillion), PIBs Rs23.540 trillion (acceptance of Rs9.682 trillion) and Sukuk Rs4.889 trillion (acceptance of Rs1.562 trillion). The government followed a calibrated acceptance strategy to manage cost and rollover risk. As a result, credit to the private sector remained subdued throughout the year. High borrowing costs discouraged private sector firms from taking new loans while macroeconomic uncertainty and weakened business confidence also dampened demand for credit. Furthermore, restrictions on imports and foreign exchange shortages earlier in the fiscal year adversely impacted industries that rely on imported raw material and machinery, further reducing the need for private borrowing. The survey suggests that private sector credit growth was either stagnant or negative in real terms when adjusted for inflation, signalling constrained access to affordable financing. On the other hand, the government's borrowing requirements remained elevated due to a large fiscal deficit and the need to meet substantial debt servicing obligations. Consequently, banks found it easier and safer to park their funds in government debt rather than riskier private sector lending. This behaviour has caused a "crowding out" effect, limiting credit availability for productive sectors such as small and medium enterprises (SMEs), agriculture and export-oriented industries – sectors that are essential for economic diversification, job creation and sustainable growth. Recognising this imbalance, the State Bank of Pakistan (SBP) introduced various policy measures to promote private-sector credit. These include the Export Finance Scheme (EFS), Long-Term Financing Facility (LTFF) and SME Asaan Finance (SAAF), designed to offer concessional financing to priority sectors. However, the uptake of these facilities has remained moderate, largely due to the high cost of borrowing, uncertain economic prospects and low-risk appetite among both lenders and borrowers. The Economic Survey cautions that unless private sector credit conditions improve, the country's broader goals of industrial modernisation, technological upgrading and export competitiveness may remain unfulfilled. The limited flow of financing to the private sector restricts the potential for new investment, expansion of productive capacity and diversification of the economy. This structural weakness poses a long-term challenge to Pakistan's growth trajectory and must be addressed through coordinated fiscal, monetary and structural reforms aimed at reducing the government's borrowing needs and enhancing the creditworthiness of private enterprises. Financial inclusion remains a strategic priority but continues to face hurdles. The survey notes encouraging growth in microfinance and branchless banking sectors, yet large segments of the population – particularly women and rural communities – remain underserved. The microfinance sector reported significant expansion, with active borrowers increasing from 9.56 million in December 2023 to over 12.34 million by the end of 2024. Total deposits in microfinance institutions rose from Rs597 billion to Rs732.9 billion over the same period. However, the average loan size decreased from Rs59,988 to Rs48,971, indicating smaller loan amounts that may limit economic empowerment potential. Branchless banking, a vital tool for reaching the underserved population, saw positive momentum as well. The number of branchless banking accounts increased 11% to 126.7 million in December 2024, with transaction volumes growing 38% to over 5.4 billion during the year. The value of these transactions surged 42% to Rs25.8 trillion, highlighting growing reliance on digital financial services. Despite these gains, infrastructure gaps, limited digital literacy and low trust in formal financial institutions continue to impede broader financial inclusion.
Express Tribune
09-06-2025
- Business
- Express Tribune
Finance minister touts recovery, reforms in Economic Survey 2024–25
Pakistan's economy is on the mend following key structural reforms, Finance Minister Muhammad Aurangzeb said Monday while presenting the Economic Survey for FY2024–25. 'We were not moving in the right direction,' Aurangzeb admitted, but said the government had since implemented reforms to consolidate the economy—particularly in taxation, debt control, and energy. He noted significant improvements in the power sector, with better governance in distribution companies after the inclusion of private sector professionals on their boards. 'Recoveries have been remarkable,' he said, while acknowledging the need to tackle system leakages. Public finances also benefited from a sharp cut in the policy rate, which helped reduce debt servicing costs by around Rs800 billion. 'Debt servicing remains the single largest expense item, but we've saved nearly a trillion rupees,' he added. The minister announced plans to privatise 24 state-owned enterprises (SOEs) in the coming year, after curbing annual losses of Rs800 billion. 'We've stopped the bleeding,' he said. Highlighting macroeconomic indicators, Aurangzeb said the current account recorded a surplus of $1.9 billion during July–April FY25, driven by strong IT exports. Remittances are projected to reach $37–38 billion by year-end, up from $27 billion two years ago. He also placed Pakistan's recovery within the broader global context, noting that world GDP growth has reached 2.8%. 'We need to first stop the bleeding and then address legacy issues,' Aurangzeb further said. 'The government is no longer a desperate borrower,' Aurangzeb said, crediting a significant reduction in the policy rate for saving nearly Rs1 trillion in debt servicing costs, including Rs800 billion in the current fiscal year. The number of individual tax filers has doubled as Pakistan expanded and deepened its tax base, the minister said. During FY25, the government also retired Rs2.4 trillion in treasury bills and raised Rs610 billion through a newly introduced two-year zero-coupon bond, extending the average maturity of domestic debt from 2.9 to 3.5 years. The government now projects FY26 as a 'turnaround year,' with plans to privatise 24 loss-making state-owned enterprises. Aurangzeb said banks will also be expected to step up lending to the private sector. The economy posted mixed results across sectors. Agriculture grew 2.6% despite falling production of key crops including cotton, wheat and maize. Rice exports, however, improved significantly. Construction posted a 6.6% growth rate, while services expanded by 2.9%. Large-scale manufacturing (LSM) remained in contraction but showed signs of stabilisation. In March 2025, LSM grew 1.8% year-on-year, compared with 1.7% in the same month last year. However, a month-on-month decline of 4.6% was recorded, slightly better than February's 5.6% fall. Electricity generation capacity reached 46,605 MW, with 55.7% from thermal sources and 24.4% from hydropower. Consumption stood at 80,111 GWh, with nearly half used by households. Petroleum product demand rose 7% in the July–March period, with transport accounting for 80% of use. Aurangzeb said governance in the power sector has improved, with private sector experts brought onto boards of power distribution companies. Recoveries were described as 'remarkable,' though energy sector leakages remain a challenge. The external sector saw improvement, with a $1.9 billion current account surplus in July–April FY25, driven by IT exports. Remittances are projected to hit $37–38 billion this fiscal year, up from $27 billion two years ago. Imports rose 12%. On the climate front, Pakistan launched its Recharge Pakistan Project with $77 million in funding and introduced its first Carbon Market Policy at COP29. "The next fiscal year will be a turnaround story,' Aurangzeb said, setting the tone for a budget expected to aim for IMF compliance, increased revenue, and growth-focused reforms. Pakistan's foreign exchange reserves rose to $16.64 billion Aurangzeb said addinf that it, boosted by improved economic indicators and renewed investor confidence, even as the agriculture sector posted weak growth due to poor crop yields. Of the total reserves, the State Bank of Pakistan held $11.5 billion while commercial banks retained $5.14 billion. The increase follows improved credit ratings, with Fitch upgrading Pakistan's sovereign rating from CCC+ to B- with a stable outlook. The International Monetary Fund (IMF) acknowledged Pakistan's progress under the Extended Fund Facility (EFF) and approved an additional $1.4 billion under the Resilience and Sustainability Facility (RSF) to support the country's climate adaptation and disaster resilience efforts. Pakistan's stock market also performed strongly, with the benchmark index delivering a 50% return and gaining 78,000 points over the fiscal year, reflecting growing investor confidence. Agriculture, however, remained under pressure. The sector recorded a modest 0.56% growth in FY25 due to a decline in major crop production. Officials acknowledged challenges including inadequate crop storage and limited farmer financing. Reforms are being explored to reduce middlemen's role and improve farm-to-market access. Meanwhile, more than 5,000 federal cost centres have been tagged under the government's new Climate Budget Tagging initiative aimed at tracking climate-related spending. In the social sector, the Benazir Income Support Programme (BISP) disbursed Rs593 billion during the fiscal year to support vulnerable households.
Business Recorder
26-05-2025
- Business Recorder
Substantial quantity of betel nuts seized
KARACHI: The Anti-Smuggling Squad (ASO) of Karachi Customs Enforcement has seized substantial quantity of betel nuts. According to the details, the operation took place at the Mochko checkpoint on RCD Highway, where customs enforcement personnel conducting routine inspections flagged a suspicious trailer coming from Hub, Balochistan. The vehicle, bearing registration number TKT 427, was found to be carrying illegal cargo of betel nuts concealed beneath & between tuff tiles. Upon thorough examination, officials discovered 290 bags of betel nuts, weighing approximately 3,000kg (3 tons), with an estimated value of Rs2.4 million. The contraband had been cleverly hidden within the legitimate cargo of tuff tiles in an attempt to evade detection. In addition to seizing the illegal betel nuts, customs authorities also impounded the trailer used in the smuggling operation, valued at Rs10 million. The combined value of the seized items totals Rs12.4 million. The confiscated materials and trailer have been transferred to the ASO warehouse for further processing. Customs authorities have registered a case and initiated legal proceedings against those involved in the smuggling attempt. Copyright Business Recorder, 2025
Business Recorder
08-05-2025
- Business
- Business Recorder
A market in name only
EDITORIAL: The Power Division's latest invitation for stakeholder comments on the long-touted Competitive Trading Bilateral Contract Market (CTBCM) would be laughable, were the state of Pakistan's power sector not so dire. For years, the same reforms have been announced, reannounced, and endlessly recycled through public consultations and draft directives. Now, yet again, the country is being told that competitive electricity trading is just around the corner — with a token 800MW to kick-start liberalisation. The irony is staggering. In a sector drowning in circular debt, inefficiencies, and wilful defaulters, this obsession with process over outcome has become a cruel joke. The National Electricity Plan (NEP) 2023–27 was never going to be a silver bullet. But when some of its key directives, like #87, are being reworded not to enable reform, but to better structure cost recovery for legacy failures, the intent becomes transparent: this isn't liberalisation; it's rearranging the furniture while the house burns. The Power Division's proposed amendment now seeks comments on how to allocate stranded costs — the inevitable fallout of prior bad planning — onto new market participants. This, at a time when the International Monetary Fund is pressing for efficiency in distribution companies, not further bureaucratic entanglements. Why is this model, already discussed to death, being thrown back into public consultation? What more is there to extract from stakeholders who, in many cases, are the very reason the sector is where it is today? The answer lies in a systemic addiction to appearances. These consultations serve primarily to project the illusion of progress, of inclusion, of reform through consensus. But consensus with whom? Several of these 'stakeholders' are themselves serial defaulters, culprits behind the power sector's financial rot, and habitual opponents of reform whenever it threatens their rent-seeking arrangements. The circular debt continues to spiral, now breaching Rs2.4 trillion, while technical losses remain high and recovery ratios pitiful. Despite all the planning documents, task forces, and workshops, the fundamentals refuse to improve. This should prompt a reckoning with the assumptions underpinning the CTBCM itself. Instead, we get redrafted directives and a fresh round of comments — this time with a five-year window for liberalisation and complex caveats for cost recovery, hedging, and hybrid sourcing. Meanwhile, the market stays inert, confidence erodes, and industrial consumers remain hostage to poor governance and predatory pricing. The Power Division's new language emphasises 'balancing financial viability, affordability, and competition.' These are admirable goals, but impossible to achieve in a sector where the price of electricity includes embedded costs for idle capacity contracted under take-or-pay agreements, pilferage, bloated payrolls, and cross-subsidies. Penalising new entrants into the market by saddling them with stranded costs is not liberalization — it's a deterrent. It creates disincentives for investment, distorts price signals, and entrenches the worst aspects of the current system under the guise of reform. The concerns raised by the Korangi Association of Trade and Industry (KATI) are therefore not incidental. They strike at the core contradiction of the CTBCM process: a competitive market cannot function when its rules are retrofitted to protect incumbents. Making new entrants shoulder the costs of past mismanagement — particularly when they had no hand in creating it — undermines the very purpose of transitioning to open access. It's little surprise that the private sector remains wary of participation, and even less surprising that reform fatigue has set in. What's even more worrying is the Power Division's willingness to caveat reforms with broad exemptions, conditionalities, and budget-dependent subsidies that render the new model barely distinguishable from the old. If open access is contingent on fiscal space, third-party consultants, and future frameworks yet to be written, then it is neither open nor accessible. It's policy theatre. Pakistan's power sector does not need more discussions. It needs decisions — backed by enforcement. It needs accountability for the billions in capacity payments, theft, and non-recovery. And it needs a clear break from the model of state-managed dysfunction dressed up as market reform. Until that happens, the CTBCM — however well-packaged — will remain a market in name only. Copyright Business Recorder, 2025
