Pakistan to Present IMF Plan to Clear Rs3.6tr Gas Sector Circular Debt

The government is preparing to present the International Monetary Fund (IMF) with a three-year strategy to eliminate Pakistan’s estimated Rs3.6 trillion gas-sector circular debt, as authorities work to meet a key condition ahead of the upcoming economic review.

 

The Finance Ministry is expected to brief the IMF on the proposed settlement framework during review discussions scheduled for the last week of September. Officials said the final structure will be determined following consultations with the lender.

 

The gas sector’s circular debt currently stands at around Rs3.6 trillion, including approximately Rs2.1 trillion in accumulated interest and Rs1.5 trillion in principal.

 

The buildup has been attributed to tariff differentials, unpaid receivables and various policy-related costs. A government committee report estimated the tariff differential at around Rs1.4 trillion, while receivables from the power sector were reported at Rs123 billion. Sales and income tax receivables stood at around Rs211 billion, with litigation-related costs adding another Rs58 billion.

 

Expensive imported LNG has further increased pressure on the gas sector. Gas utilities have supplied costly imported LNG to domestic consumers, while disruptions in LNG deliveries under Pakistan’s arrangement with Qatar have required the country to procure additional cargoes from the spot market at higher prices.

 

Under the proposed three-year settlement plan, around Rs840 billion could be generated through dividends from gas companies, while another Rs270 billion may come from the petroleum levy.

 

The government is also considering reducing the debt burden by around Rs310 billion through the deferral of additional LNG cargoes from Qatar. A further Rs15 billion could be addressed through power-sector take-or-pay arrangements, while approximately Rs60 billion may be recovered through the full collection of LNG-related costs.

 

The plan also includes settling the accumulated interest component of the gas-sector circular debt.

 

However, recovering the full cost of LNG could translate into higher gas prices for consumers, potentially adding to inflationary pressures. The government is expected to discuss these implications with the IMF before finalising the debt-settlement framework.