Pakistan’s efforts to resolve its growing gas sector circular debt have hit another hurdle after the government and the International Monetary Fund (IMF) failed to reach an agreement on a proposed settlement framework. The unresolved plan, valued at Rs1.7 trillion, will now undergo further negotiations, with both sides expected to resume discussions in September.
The delay comes as Pakistan’s gas sector circular debt continues to rise, reaching an estimated Rs3.3 trillion. The mounting liabilities remain one of the country’s most pressing energy sector challenges, placing additional pressure on public finances and the overall energy supply chain.
According to officials familiar with the discussions, recent virtual meetings between Pakistani authorities and the IMF ended without a consensus on how the debt should be addressed. The key disagreement centers on the IMF’s proposal to broaden the recognition of financial losses incurred by state-owned gas utilities.
The IMF has recommended that losses recorded by gas distribution companies should be formally included as part of the sector’s total circular debt. It has also proposed that receivables considered unlikely to be recovered should first be classified as financial losses before any recapitalization of the companies takes place.
Officials within Pakistan’s Petroleum Division have reportedly expressed concerns over several aspects of the IMF’s proposed framework. They believe that the suggested conditions require additional technical evaluation and policy discussions before they can be incorporated into a final settlement plan.
As a result, both sides have agreed to continue negotiations later this year. The government is expected to revise its debt settlement proposal in consultation with the IMF before presenting an updated framework during the next round of talks in September.
The gas sector circular debt has accumulated over many years due to a combination of structural and financial challenges. These include gas tariffs that remain below actual supply costs, high levels of unaccounted-for gas (UFG) losses, delayed subsidy payments by the government, tariff differences related to Re-gasified Liquefied Natural Gas (RLNG), and weak recovery of outstanding dues by state-owned gas companies.
These long-standing issues have significantly affected the financial health of Pakistan’s energy sector, limiting investment opportunities and creating liquidity constraints throughout the gas supply chain. Industry experts believe that comprehensive reforms will be necessary to restore financial sustainability and improve operational efficiency.
The Petroleum Division has already been working on several measures to strengthen the sector. These efforts include improving billing systems, increasing recovery of unpaid bills, reducing technical and commercial gas losses, and restructuring existing liabilities to create a more sustainable financial model.
The outcome of the upcoming negotiations with the IMF will be closely watched by investors, policymakers, and energy sector stakeholders. A mutually agreed settlement plan could play an important role in strengthening Pakistan’s fiscal position while improving the long-term stability of its energy sector.
Although no final agreement has been reached yet, continued engagement between Pakistan and the IMF signals that both sides remain committed to finding a workable solution to one of the country’s largest financial challenges.