ISLAMABAD: Circular debt in Pakistan’s electricity and gas sectors has increased to Rs. 5.1 trillion, an alarming increase from Rs. 3.5 trillion registered just one year before, according to an urgent warning by the National Assembly Standing Committee on Finance regarding the worsening fiscal situation of the country after an exhaustive economic assessment on Monday. With a yearly increase of Rs. 1.6 trillion in Pakistan circular debt in combination with an external debt of $137.56 billion, an economy is recovering under precarious conditions.
The meeting of the committee held in Islamabad discussed the entire economic scenario of Pakistan, including financial needs for the fiscal year 2026-27, especially new challenges, IMF programme implementation, and the need to implement structural reforms which successive governments have often postponed.
Projected GDP Growth of 3.5%-4.5% with Double-Digit Inflation Rate
The economic outlook of Pakistan is likely to be very moderate in nature. For the fiscal year 2026-27, the expected growth rate in terms of GDP growth will remain within 3.5%-4.5%, which according to economic analysts, is not sufficient enough to alleviate any kind of unemployment or poverty issues.
The rate of inflation has climbed back up into double digits, hitting 10.9% on an annual basis in April 2026, a development that clearly shows that the notion of price stability being achieved by the government was mere talk that was being spun in 2025. The committee report has aptly captured the current state of the economy in Pakistan in its description as “fragile stability.”
Failure of Reforms in Pakistan through Pakistan’s Increase in Circular Debts
A rise of Rs5.1 trillion in Pakistan’s circular debts in one single year from Rs3.5 trillion is an issue that goes beyond the accounting records. The rising circular debts in Pakistan indicate the failure of structural reforms that Pakistan has promised to implement without executing.
Circular debt occurs due to the inability of the power and gas supply companies to collect their complete cost from the consumers and the government, and as such, grows bigger each year tariff rationalization, loss reduction, and public sector enterprises reforms are not completed. As Pakistan’s circular debt stands at Rs5.1 trillion, it is so big that it limits the ability of the government to grow, invest, and protect its citizens simultaneously.
ALSO READ: Your Electricity Bill Could Be a Trap Power Division Exposes Fake QR Code Scam
Challenges Facing Committees on Tax Base and Oil Revenue
The Standing Committee of the National Assembly on Finance was highly critical of the fact that the government continues to depend on indirect taxation and oil revenues. This is an indication that there is a need to increase the tax base in the country. The fact that the tax base remains narrow implies that many people have to pay taxes despite the high pressure they are facing.
In particular, the chair of the committee expressed worries about the pace of reforms within the state-owned enterprises, which is a key element of the country’s IMF program. The losses resulting from functioning of the state-owned enterprises at costs lower than revenues, and lacking any privatisation schedule, are contributing to circular debt build-up every year.
Social Pressure Escalating Alongside Economic Vulnerability
Apart from the economic issues concerning debt and GDP growth rates, the committee shed light on the social aspect of the fragile economy of Pakistan. Increasing inflation rates, joblessness, and poverty have left Pakistani families with no choice but to tighten their belts, an issue that the government must now address.
The Rs5.1 trillion circular debt in Pakistan is fundamentally an indicator of a number of delayed decisions, all of which have associated social costs that only get larger with each passing year the political decision-makers delay taking them. The sense of alarm from the Standing Committee on Public Accounts is reflective of an increasing consensus within the parliament that the time to make these decisions is running out before any government officials can even begin to realize it.
