The IMF Executive Board completed the second review of Pakistan's Extended Fund Facility on 8 December 2025. The staff report behind that decision, completed on 20 November, contains the clearest official picture yet of what a year of energy reform has done to circular debt, and it is better on power than most domestic commentary allows and worse on gas.
Power: the stock fell, for identifiable reasons
According to the staff report, power-sector circular debt fell by PRs 779 billion during FY2025, to PRs 1,614 billion at end-June, or 1.4 per cent of GDP. Flow came in below the programme targets for March and June. By our calculation that is a fall of about a third in a single year (779 divided by an opening stock of 2,393). The IMF attributes it mainly to lower international interest rates, which produced subsidy savings, and to timely tariff adjustments. It also credits the shift of captive power plants onto the grid, which it says lifted industrial power consumption by 35 per cent year on year over April to August 2025 and offset weak demand elsewhere.
None of these is a structural fix to distribution losses. Interest rates can rise again. The captive transition is a one-time gain in grid sales, pushed along by the levy that raises the price of gas to captive users. DISCO losses and recovery shortfalls, the core of the problem, barely feature as sources of improvement.
Gas: the larger and growing problem
The gas sector moved the other way. Principal gas circular debt fell by PRs 86 billion, but estimated late payment surcharges owed to gas suppliers rose enough to lift total gas circular debt by PRs 227 billion to PRs 3,183 billion, or 3.0 per cent of GDP. Gas circular debt is now almost twice the power figure (3,183 against 1,614). The staff report links part of the strain to long-term RLNG contracts at a time of falling demand, including from power plants, and to the burden of cross-subsidising households shifting onto a shrinking base of industrial gas users as captive plants leave.
What FY2026 asks for
The programme sets indicative targets of PRs 400 billion for power circular-debt flow at end-March and end-June 2026, and assumes stock clearance subsidies of the same size so that net accumulation is zero. The authorities also plan to move annual tariff rebasing from June to January from 2026, when demand is lower.
Our reading is that FY2025's power result was real but partly lucky, and the year-end briefings should say so. The test for 2026 is whether flow stays within target once interest savings are used up, with DISCO sales still incomplete. Gas deserves its own monthly flow series published alongside the power one. At present the larger debt is the less visible of the two.