The government has settled an agreement of Islamic financing worth Rs1.275 trillion ($4.5 billion) with 18 commercial banks to address the heightening debt crisis in Pakistan’s power sector.
This initiative is focused on resolving the sector’s circular debt problem, which has disrupted energy supply, discouraged investment, and burdened the economy.
The financing, designed under Islamic principles, will be repaid in 24 quarterly installments over six years and comes at a discounted rate of 3-month KIBOR minus 0.9%.
Importantly, this facility will not be counted as public debt. The agreement is part of the broader reform plan under Pakistan’s $7 billion IMF program.
The current liabilities in the power sector include costly surcharges and older loans priced above standard rates, making this new facility significantly more affordable. Major banks namely Meezan Bank, UBL, HBL, National Bank of Pakistan are involved.
Each year, Rs323 billion has been dedicated for repayment, making a total of Rs1.938 trillion over the loan term. This progress also supports Pakistan’s strategic goal of eliminating interest-based banking by 2028, with Islamic banking now making about 25% of the country’s financial sector.
Officials see this financing deal as a key step toward economic stability, improved energy sector performance, and increasing confidence in investors